Competitive intensity, valuations may cap gains in Ambuja Cements

ACEM reported strong growth of 81 per cent Y-o-Y in operating profit to Rs 1,760 crore, and operating profit per tonne (t) grew 52 per cent Y-o-Y to Rs 1,042

Ambuja Cements (ACEM) reported Q2FY26 numbers that beat consensus estimates. The company has strong capacity addition lined up for FY26-FY28, apart from the ramp-up of acquired capacities. It will have the ability to sustain volume additions for next 3-4 financial years, and therefore, drive market share gains. The management is working to lower costs/ tonne. However, every cement major has capacity additions in progress and valuations may already be discounting gains to a large extent. 

ACEM reported strong growth of 81 per cent year-on-year (Y-o-Y) in operating profit at ₹1,760 crore and operating profit per tonne (t) grew 52 per cent Y-o-Y to ₹1,042. Margin was up 600 basis points (bps) at 19 per cent. Adjusted profit was up 14 per cent Y-o-Y at ₹560 crore. 

Management is targeting reduction of costs from ₹4,200/tonne currently to ₹3,650/tonne by FY28 through optimised fuel mix, higher green power use, and logistics improvement. 

Primary lead distance was reduced by 2 km to 265 km. Costs have been reduced due to dispatch optimisation and supply chain visibility via the artificial intelligence (AI)-driven CiNOC (Cement Intelligence Network Operations Center) platform.

 

There are debottlenecking initiatives across plants with grinding capacity addition of 15 million tonnes per annum (mtpa) at a capex of $48/t. Hence, ACEM raised its capacity target to 155 mtpa by FY28 (versus 140 mtpa earlier).

 

Consolidated volume was up 19 per cent Y-o-Y to 16.9 mt, with blended realisation/t up 5 per cent Y-o-Y. The consolidated revenues stood at ₹9,170 crore while operating profit was at ₹1,760 crore and adjusted net profit at ₹560 crore, up 24 per cent, 81 per cent and 14 per cent, respectively.

 

Opex/t was down 2 per cent Y-o-Y, led by declines in variable and freight costs.. Depreciation rose 70 per cent Y-o-Y, due to acquisitions.

 

In H1FY26, revenue was at ₹19,460 crore and operating profit at ₹3,720 crore and adjusted net profit at ₹1,340 crore, up 23 per cent, 65 per cent and 18 per cent.

 

Operating profit margin (OPM) was 480 bps Y-o-Y. 

The operating cash outflow was at ₹1,440 crore versus operating cash flow (OCF) of ₹1,880 crore in H1FY25.

 

Capex was at ₹3,560 crore versus capex of ₹4,550 crore in H1FY25.

 

The cement demand growth was minimal at 4 per cent Y-o-Y in Q2 due to early monsoon, but management has guided for 7-8 per cent demand growth in FY26.

 

This is due to GST cuts, rural recovery and infra projects.

 

For ACEM, share of premium products went to 35 per cent from 33 per cent Q-o-Q, driven by consumer acceptance of the Adani Cement brand.

 

Green power contributed 33 per cent of total power requirement versus 16 per cent Y-o-Y and 28 per cent in Q1FY26 and ACEM aims to increase green to 60 per cent by FY28.

 

Total renewable capacity is 673 Mw and this will scale to 900 Mw by FY26-end and 1,122 Mw by FY27. Average power cost will decline from ₹6/unit to ₹4.5/unit. The Kiln fuel cost was at ₹1.63/Kcal versus ₹1.6 in Q2FY25 and ₹1.59 in Q1FY26 which is at the low end of industry costs. 

 

The integration of Orient Cement, Penna and Sanghi was encouraging. All sales are now routed under ACEM or ACC brands, with improved profitability at subsidiaries.

 

Execution is key to the capex and debottlenecking plans to meet timelines.

 

By FY26 end, capacity will be at 118 mt from 107 mt currently, and 130-135 mt by FY27, and 155 mt by FY28, if targets are met.

 

The ongoing projects include Salai Banwa, Marwa, Mundwa, Penna Marwar, Dahej, Kalamboli, Bathinda, Jodhpur, and Warisaliganj. Trial runs have begun at Bhattapara (4 mt clinker), while the Krishnapatnam Grinding Unit (2 mt) is operational. ACEM expects to add 11.2 mt in FY26, reaching 118 mt capacity by March 2026.

 

There is the possibility of double-digit volume growth if ACEM can gain market share and profitability improvement on cost reductions.

 

The market share rose by about 100 bps to 17 per cent.

 

Excluding acquired entities, organic volume growth stood at 11 per cent Y-o-Y with the management pointing at better distribution network and retail presence in western and southern markets. The management remains confident of double-digit growth.

 

Most analysts seem positive on the stock with caveats being valuations, high competitive intensity which will prevent price gains.