Ambuja Cements Share Price Target: Mixed Ratings on Strong Q2 Performance

Ambuja Cements delivered a stronger-than-expected performance in Q2 FY25, with notable volume growth and lower-than-anticipated costs.

Ambuja Cements posts better-than-expected Q2 FY25 operating performance: volume growth accompanied with lower cost than expected. However, analyst ratings for the share price target are mixed as brokerages have a divided view on the trajectory of future performance, with some seeing more upside and others warning about the potential challenges that could affect profitability along with EBITDA too.

Q2 FY25: Important Highlights

Q2 FY25 (July-September 2024), Ambuja Cements surprisingly posted better than expected volumes and cost efficiencies. True, the cement giant’s volume growth is backed by a scaling up of operations along with enhanced cost leadership as well as synergies from recently inducted assets. Slightly lower profits and EBITDA margins aside, the CNBC-TV18 polls, this still turned out more than what had been forecasted. The management elaborated on factors supporting this better performance improvements: higher volumes, and operational scale.

Synergy benefits because of acquisition

Operational efficiency improvements
Brokerages Mixed Calls On Ambuja Cements’ Share Price Target
Ambuja Cements has reported good Q2 numbers, but the brokerages have made mixed calls on the company’s share price, reflecting their views on its growth prospects.

Morgan Stanley: Overweight Rating with Target Price of ₹775

Morgan Stanley is positive about Ambuja Cements and has given the stock an overweight rating accompanied by a target price of ₹775, which brings about 35% from the closing price on 28th October. It complimented Ambuja in its standalone and consolidated volume, which was higher than an estimate. Morgan Stanley then mentioned that the EBITDA per tonne also came at ₹780 where the estimate was at ₹697. However, the cash position has come under stress with the acquisition of Penna Cement for ₹78 billion.

UBS: Sell rating with a target price of ₹475

Sell call has been initiated on Ambuja Cements, and the target price placed is ₹475. Now, this would come in at a downside of 16%. UBS highlighted that volume growth was achieved for Ambuja but that EBITDA for Q2 declined not only below its own estimates but indeed below street consensus.

Weak demand along with subdued pricing were given as factors still likely to weigh on near-term financials for the company.

However, Citi has maintained its neutral rating with a target price of ₹610.
A modestly premium target price of ₹610 has been adopted with a neutral stance; Citi said that while consolidated EBITDA declined 15% YoY on the back of lower realizations, Ambuja was able to more than offset this with 9% volume growth and 4% cost decline. However, it has decreased its EBITDA estimates for FY25, FY26, and FY27 by 14%, 23%, and 16%, respectively, by taking into account recent trends in costs and volumes.

Goldman Sachs: Neutral Rating at ₹640
Goldman Sachs has also given a neutral rating with a target price of ₹640. The brokerage pointed out that Ambuja’s consolidated volumes have been increasing by 8% YoY driven by projects other than Penna and My Home acquisitions. Even though the EBITDA per tonne declined sequentially by ₹27, Ambuja was better than the industry average. Realizations increased 1% QoQ.
Market Outlook and Growth Estimates
The management of Ambuja Cements remains optimistic about further growth. It expects the industry demand to grow at 4-5% for FY25, thus the second half of the fiscal would require a growth of 8-10% to meet that target as well. For that, Ambuja is bound to continue process improvements and to scale up the production scale.

Future of Ambuja Cements share price
The market position of Ambuja Cements is not clear-cut. Divided views regarding the company among these brokerages are indicative of a complex situation. The positives include strong volume growth, synergies from acquisitions, and cost optimizations. Fluctuating pricing, declining profit margins, and EBITDA concerns make the outlook less favorable for some analysts. Growth potential along with challenges identified by different brokerages can be an interesting proposition for investors who are interested in shares.

Disclaimer:

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