Ambuja Cement prioritises margins as capacity additions support volume recovery

Investment View and Valuation

Prabhudas Lilladher maintained its BUY rating on Ambuja Cement following the July 29, 2026 Q1FY27 result update, while reducing its target price to Rs504 from Rs520. The broker considers the operating performance broadly inline despite lower volumes, as the company recalibrated its strategy towards value and profitability rather than low-margin volume growth.

The key execution requirements are delivery of the cost-reduction roadmap, stabilisation and improvement of acquired assets, and recovery of lost market share. Prabhudas Lilladher cut its FY27E and FY28E EBITDA estimates by around 4 per cent, citing poor ACC performance and weaker net sales realisation.

The target price applies an unchanged 15 times enterprise value to March 2028E EBITDA, less net cash. At the report CMP of Rs435, the stock traded at 13.2 times FY28E EV/EBITDA.

Q1FY27 Operating Performance

Ambuja Cement reported consolidated revenue of Rs95 bn in Q1FY27, down 8 per cent year on year and 9 per cent below Prabhudas Lilladher's estimate of Rs104.5 bn. Cement volume, including 0.3 mt of clinker, declined 8 per cent year on year to 17.3 mt and was 6.6 per cent below the broker estimate of 18.5 mt.

The volume decline reflected the company's decision to give up low-margin non-trade business. Non-trade volume fell 21 per cent year on year, while trade volume declined 2 per cent. Trade sales nevertheless increased to 78 per cent of total sales from 74 per cent in Q4FY26. Management deliberately curtailed nearly 1 mt of low, zero or negative EBITDA volume in South India. Premium cement accounted for 34 per cent of trade sales.

Blended net sales realisation improved 1 per cent quarter on quarter to Rs5,491 per tonne, but remained below the broker estimate because of consolidation of acquired assets. Consolidated EBITDA fell 19 per cent year on year to Rs15.9 bn, broadly in line with the estimate, while EBITDA margin declined 233 basis points year on year to 16.7 per cent.

EBITDA per tonne was Rs918, down 11 per cent year on year but up 26 per cent quarter on quarter and above the broker estimate of Rs851 per tonne. Costs declined Rs206 per tonne quarter on quarter, helped by a lower clinker factor and operating efficiencies, although imported-fuel inflation and packaging costs offset part of the benefit. Adjusted PAT of Rs6 bn was 24 per cent lower year on year but 60 per cent above the broker estimate.

Volume Recovery and Capacity Expansion

Management reiterated FY27 volume-growth guidance of around 8 per cent, supported by improving demand and July trade volumes. It expects to recover market share through stronger trade volumes and capacity additions.

Ambuja Cement has temporarily shut around 3.5 mtpa of older capacity for approximately six months to optimise operations, including certain ACC assets and one acquired asset. Capacity utilisation was around 65 per cent, with a medium-term target of 70-75 per cent.

Kalamboli, with 1 mtpa capacity, and Warisaliganj, with 2.4 mtpa capacity, are expected to be commissioned in Q2FY27. These additions are expected to take capacity towards 119 mtpa by FY27-end. FY27 capex guidance is around Rs65 bn.

Orient Cement is operating at around 87 per cent utilisation, while Penna Cement and Sanghi Cement remain opportunities for utilisation and profitability improvement. Prabhudas Lilladher notes that older ACC, Sanghi and Penna units must be brought closer to Ambuja Cement's EBITDA per tonne performance, which could take several quarters.

Cost Reduction and Green Energy Initiatives

Management targets cement cost of around Rs4,250 per tonne in FY27 and Rs4,000 per tonne in FY28. The FY27 savings programme covers logistics, renewable energy, clinker and raw-material optimisation, manufacturing efficiencies and fixed-cost initiatives. Incremental savings of around Rs130-150 per tonne are expected.

Renewable-power capacity reached 973 MW and is targeted at 1,122 MW by FY28. Waste-heat recovery capacity is expected to rise from 228 MW to 376 MW. Green-power share was 34 per cent in Q1FY27, against a target of 60 per cent in FY28.

Earnings Outlook

Prabhudas Lilladher forecasts Ambuja Cement's consolidated volume and EBITDA to grow at compound annual growth rates of 8 per cent and 14 per cent, respectively, over FY26-28E.

Key Risks to the Thesis

• Weak execution on the cost-savings programme.
• Delayed stabilisation of acquired assets.
• Inability to recover market share.
• Weak net sales realisations.
• Imported fuel or freight inflation.