Ambuja rallies 11% on Adani's Rs 20K-cr boost; brokerages mixed on outlook

Analysts remain positive on Ambuja Cement's long-term market share gains, but caution against any possible dent in the company's profitability due to excess supply in the market

Share of Ambuja Cement touched a fresh record high of Rs 572 apiece, sprinting 11 per cent, on the BSE in Monday's intra-day trade. The shares, eventually, closed at Rs 564 apiece, up 9.3 per cent, as against 0.5 per cent rise in the benchmark S&P BSE Sensex.

The rally comes after Gautam Adani, chairman of Adani group, said that Ambuja Cement, along with its subsidiary ACC, will become India's most profitable cement company in the medium-to-long term.

Going forward, analysts remain positive on the company's long-term market share gains, but caution against any possible dent in the company's profitability due to excess supply in the market. 

"We see significant room for an increase in market share and margins via cost efficiencies. Execution would be back-ended, while Adani's growth ambitions, combined with sector's low leverage, could trigger a supply wave, and dent sector profitability," said analysts at Kotak Institutional Equities.

In a post-market hour exchange filing, Adani Group, on Friday, announced the closure of the Cement transaction, including a significant Rs 20,000-crore fund infusion into the cement business, with an ambition to become largest and most efficient cement player by 2030.

Ambuja Cement has sought approval for preferential allotment shares of 477.4 million warrants at Rs 418.87 to a promoter entity totaling Rs 20,000 crore in one or more tranches (to be exercised over an 18-month period) — potentially taking promoter ownership to 70.3 per cent from current 63.15 per cent. 

"The funds will be used towards Capex, logistics infra, digitizing logistics, optimizing plants to accelerate ESG (Environmental, social, and corporate governance) compliance, acquisitions, working capital, technology, etc. The current cash balance, internal accruals plus the additional fund infusion by promoters, will give the group enough war chest to scale up new expansions (organically or inorganically), in line with the aspiration to double capacity in 5 years," Jefferies said.

Overall, analysts said the commitment of promoters for growing cement business has strengthened after their announcement of fund infusion in this business. The group has environmental clearance/plans, and the fundraising will help to pursue inorganic growth opportunities as well.

Here's how key brokerages see Ambuja-ACC's future:

Jefferies | Upgrade to Buy | Target: Rs 620

While a detailed roadmap isn't available as of now, from current market positioning perspective, Adani Group's ownership of Ambuja Cements is meaningful and disruptive. Both Ambuja/ACC would benefit from synergies with the integrated Adani infrastructure platform, especially in the areas of raw material, renewable power and logistics, focus on ESG, Circular Economy.

Given the faster growth trajectory for Ambuja under new leadership, we now value Ambuja's consolidated EBITDA at 16x EV/EBITDA, one notch higher than 15x target multiple for Ultratech. Further, fund infusion by promoters (which we have only partly factored in given lack of details on Cash deployment) leaves option-value for higher acquisition-related growth in profitability. The brokerage has a 'Buy' rating on ACC, too, with a target of Rs 3,030.

Morgan Stanley | Underweight on ACC, Ambuja Cements
ACC and Ambuja Cements could add another Rs 10,000 crore in free cash flow (FCF) over 2022-24, implying another 15 mtpa expansion opportunity, which would take overall capacity for ACC and Ambuja Cements combined to 125mtpa.

Over the next couple of years, ACC and Ambuja Cements' combined volume growth will lag larger peers given the high starting point of capacity utilisation rates for them. Moreover, current cost structures for both ACC and Ambuja Cements will keep medium-term profitability in check. Both the shares have outperformed peers YTD and current valuations are not cheap relative to peers, limiting any re-rating triggers and hence upside potential.

Citi | Maintains Sell | Target: Rs 340

While we believe the fresh fund infusion will help the Group to achieve its stated target of doubling the capacity in five years, we await further clarity on the inroganic growth plans and use of proceeds of the warrant issue.

Motilal Oswal Financial Services | Maintains Neutral | Target: Rs 680

ACC and Ambuja Cement, historically have been a laggard in capacity additions and their installed capacities grew at a CAGR of mere 2 per cent over FY11-22; while other peers had a capacity CAGR of 6-13 per cent in the same period.

Both the companies are net cash positive with a cumulative cash balance of Rs 8,400 crore (as of end June, 2022). Fundraising of Rs 20,000 crore can help the group to increase its cement capacities by 70mtpa (25mtpa inorganic expansion and 45mtpa organic expansion) by calendar year 2026 without leveraging the balance sheet.

We have assumed $100/t and $130/t cost for Organic and Inorganic expansions, respectively, and we believe that combined net debt will be Rs 700 crore for ACC and Ambuja in CY26E. Assuming synergy benefits of Rs 200 and Rs 300/t respectively for ACC and Ambuja; net cash at CY26-end will be Rs 4,500 crore. MOFSL maintains 'neutral' on ACC with a target of Rs 3,185.

Kotak Institutional Equities | Downgrade to Sell | Target: Rs 440

We see emerging supply risk for the sector led by record low leverage, and aggressive growth ambitions of the leaders. Producers are lining up capacities with 5.5 per cent likely CAGR in FY2022-26 versus 3.9 per cent CAGR in FY2019-22.  We see upside risk to supply, which could dent sector profitability. A few companies could drive sector consolidation; however, large bid-ask spreads make timelines and success uncertain.

We increase our EBITDA for Ambuja Cement by 2 per cent/18 per cent for CY2023/24. Our fair value has increased to Rs 440/share (from Rs 345), based on September 2025 earnings discounted by one year. However, we downgrade to 'sell' from 'reduce', and find valuations rich after the recent rally.