Ambuja Cement targets margin recovery through cost cuts and capacity expansion

Investment View and Q1FY27 Overview

Prabhudas Lilladher maintained its BUY rating on Ambuja Cement following the July 29, 2026 Q1FY27 result update, while reducing its target price to Rs 504 from Rs 520. The broker considered the quarter's operating performance broadly inline despite lower volumes, as the company deliberately recalibrated its strategy towards value over volume.

Ambuja Cement gave up lower-margin non-trade business, improved its trade mix, lowered its clinker factor and temporarily shut selected capacities to improve operational efficiency. Management curtailed nearly 1 million tonnes of low, zero or negative EBITDA volume in South India.

Q1FY27 Financial Performance

Cement volumes declined as Ambuja Cement focused on lower-lead-distance, higher-margin volumes and reduced non-trade activity. Trade volumes declined 2% year-on-year, while non-trade volumes declined 21%. As a result, trade sales increased to 78% of total sales from 74% in Q4FY26.

Blended net sales realisation improved 1% sequentially to Rs 5,491 per tonne, despite regional price increases and a premium-product share of 34%. Acquired assets continued to affect the blended realisation. Cement cost declined by Rs 206 per tonne sequentially, supported by the lower clinker factor and operational efficiencies, although imported fuel inflation and packaging costs remained headwinds.

Adjusted PAT was aided by lower depreciation. The year-on-year decline in reported PAT also reflected the absence of Q4FY26 tax credits.

Cost Reduction and Margin Recovery Plan

Management reiterated FY27 volume-growth guidance of about 8%, supported by expectations of stronger trade volumes and capacity additions to recover market share. South India trade sales are expected to improve over the next one to two quarters following investments in channel expansion, trade mix and structural cost improvements.

• The company targets cement cost of about Rs 4,250 per tonne in FY27 and Rs 4,000 per tonne in FY28.
• Additional structural savings of Rs 130-150 per tonne are expected from logistics, renewable energy, a lower clinker factor, raw-material optimisation, manufacturing efficiencies and fixed-cost actions.
• Around 3.5 mtpa of older capacity has been temporarily shut for approximately six months to facilitate optimisation.
• Management targets medium-term utilisation of 70-75%, compared with about 65% currently.

Capacity Expansion and Operating Initiatives

Capacity expansion remains on schedule. The 1 mtpa Kalamboli facility and the 2.4 mtpa Warisaliganj facility are expected to be commissioned in Q2FY27, supporting the target of 119 mtpa capacity by FY27-end. FY27 capex guidance is about Rs 65,000 million, while management expects to add 8-10 mtpa of organic capacity annually thereafter.

Orient Cement has stabilised at about 87% utilisation. Penna Cement and Sanghi Cement remain opportunities for improvement in utilisation and profitability. Renewable power capacity reached 973 MW, with a FY28 target of 1,122 MW. Green power accounted for 34% of usage, and management targets a 60% share by FY28.

Broker Estimates and Valuation

Prabhudas Lilladher cut its FY27E and FY28E EBITDA estimates by about 4%, citing weak net sales realisation due to poor ACC performance. The broker forecasts Ambuja Cement volume and EBITDA CAGR of 8% and 14%, respectively, over FY26-FY28E.

The revised target price of Rs 504 values March 2028 estimated EBITDA of Rs 90,491 million at 15 times EV/EBITDA, with net cash of Rs 21,585 million. At the report CMP, the stock was trading at 13.2 times FY28E EV/EBITDA.

Key Execution Factors and Risks

The report identifies the following factors as critical to sustained profitability:

• Successful execution of the Rs 250 per tonne annual cost-reduction roadmap in FY27 and FY28.
• Stabilisation of acquired assets.
• Improvement in the older ACC, Sanghi and Penna units.
• Ramp-up of new capacity additions.
• Recovery of market share through stronger trade volumes and capacity expansion.