Ambuja Cements hits new high; here's why stock has rallied 46% in 3 months

Shares of Ambuja Cements hit an all-time high of Rs 608.50, up 3% on Friday, thus surpassing its previous high of Rs 598 registered on December 9, 2022.

Shares of Ambuja Cements hit an all-time high of Rs 608.50, up 3 per cent on the BSE in Friday’s intra-day trade, amid the ongoing rally. The stock of Adani group company surpassed its previous high of Rs 598 registered on December 9, 2022.

In past three months, the market price of Ambuja Cements has outperformed the market by surging 46 per cent, as compared to 11 per cent rise in the S&P BSE Sensex. The stock has recovered 88 per cent from its 52-week low of Rs 324.30 touched on February 28, 2023.

Ambuja, with its subsidiaries ACC and Sanghi Industries has taken the Adani Group’s cement capacity to 77.4 million tonnes with 18 integrated cement manufacturing plants and 18 cement grinding units across the country.

On Wednesday, February 21, Ambuja proposed setting up cement grinding unit with an investment of Rs 1,000 crore in Motia Village of Godda district in Jharkhand, post requisite approvals with a capacity of 4.0 MTPA. Ambuja Cements already operates two cement plants in Jharkhand with a combined capacity of 6 MTPA.

Ambuja has lined up massive investments in green power (WHRS, Solar, Wind), AFR handling, railway infrastructure and fly ash handling systems amongst others. These are expected to result in sizeable improvement in profitability/EBITDA and returns to stake holders, the company said.

According to the management, the cement Industry is expected to have a demand growth between 7 per cent and 8 per cent because of investments in infrastructure and real estate projects. India’s per capita consumption of 272 Kg as compared to the global average of ~ 550 kg provides a sizeable potential for expansion of the cement industry.

Higher consumption of domestic coal helped in improving coal cost and the trend is expected to continue. The opportunity buy of low cost petcoke in the past few weeks will help to further optimise fuel costs in the coming quarters and this augurs well in our cost optimisation journey, Ambuja said while announcing December quarter (Q3FY24) results on January 31.

According to analysts at Axis Securities, cement demand in the country is likely to remain robust on account of higher government thrust on creating infrastructure and developing low-cost and affordable housing. Private Capex is also expected to drive the cement demand moving forward along with robust real estate demand. The brokerage firm expects the overall industry to grow in the range of 8 per cent-9 per cent in FY23-FY26E.

Given the Ambuja’s superior positioning in key markets of North, West, and East India regions along with cost-saving initiatives it has undertaken and synergies with other group companies of Adani, growth momentum is expected to continue moving ahead. Furthermore, factoring in the government’s keen focus on developing infrastructure and low-cost affordable housing, revival in rural demand and increasing private capex, we expect ACL to improve its performance going forward, it added.

The green energy initiative of the company is poised to help the company better its margins going ahead. The recent completion of the company’s acquisition of Sanghi Industries is going to add healthy volumes to the company, thereby increasing sales and realizations, said the brokerage firm BP Equities.

The company’s constant acquisitions of coal and limestone mines through government bidding will significantly help reduce its costs and better the margins going forward. Due to various factors being in favour of the company, the brokerage firm has a positive outlook for the company going ahead.