 "Ambuja Cements")
Adani group-promoted Ambuja Cements reported a 156 per cent year-on-year (Y-o-Y) rise in its consolidated net profit (attributable to the owners of the company) for the third quarter of the current financial year.
Nevertheless, margins remain under pressure while volume growth is high due to acquisitions. The capex plans will take capacity to 140 million tonnes per annum (mtpa) from the current operating capacity of 97 mtpa.
The consolidated revenue stood at Rs 8,500 crore, with adjusted earnings before interest, taxes, depreciation, and amortisation (Ebitda) at Rs 890 crore, and adjusted profit after tax (PAT) at Rs 410 crore in Q3FY25. Volume rose 17 per cent Y-o-Y to 16.5 mt.
The Q3FY25 consolidated Ebitda (adjusted for prior period incentives of Rs 830 crore) declined 49 per cent year-on-year (Y-o-Y) to Rs 890 crore due to weak realisations and higher operating expenditure per tonne (opex/tonne) due to acquired assets that are in transition and ramp-up.
The Ebitda per tonne declined 56 per cent Y-o-Y to Rs 537. PAT (adjusted for reversal of tax provisions) declined 50 per cent Y-o-Y to Rs 410 crore.
The blended cement mix in total sales volumes is at about 82 per cent. Premium products as a per cent of trade volume increased 400bp Y-o-Y to 26 per cent (but was flat on a quarter-on-quarter or Q-o-Q basis). Of the consolidated volume growth of 17 per cent Y-o-Y, over 10 per cent of growth was driven by two acquisitions of Sanghi and Penna Cement. Management expects capacity utilisation for both companies to increase to over 70 per cent in FY26 (from below the current 40 per cent).
On a per tonne basis, realisation declined 11 per cent Y-o-Y to Rs 5,153, while opex was up 2 per cent Y-o-Y led by 6 per cent increase in variable cost. However, freight cost declined 7 per cent Y-o-Y. The operating profit margin or OPM contracted 1,090 bps Y-o-Y to 10 per cent.
In 9MFY25, revenue was flat Y-o-Y, while adjusted Ebitda declined 33 per cent and adjusted PAT declined 40 per cent. The OPM contracted 640 bps Y-o-Y to 13 per cent and Ebitda per tonne was down 39 per cent Y-o-Y to Rs 674.
Management expects demand to grow 4-5 per cent in FY25, implying a better demand scenario in the second half. Price hikes were implemented in mid-December 2024, which will positively impact Q4FY25. However, cement prices in the South remain depressed.
The exposure in the South has increased due to the acquisitions. Kiln fuel costs stood at Rs 1.66/Kcal versus Rs 1.84/Kcal Y-o-Y and Rs 1.59 Q-o-Q. The share of alternative fuels and materials in the fuel mix was at 8 per cent versus 9.5 per cent in Q2FY25.
The share of green power increased to 21.5 per cent versus 15.8 per cent Y-o-Y and 18.2 per cent Q-o-Q. The company increased Waste Heat Recovery Systems capacity from 40Mw to 197Mw and aims to expand it further to 218Mw by March this year.
Freight costs declined. Direct dispatches increased 700 bps Y-o-Y to 57 per cent. The company has ordered 11 rakes under the Railways scheme for General Purpose Wagon Investment for clinker movement. The company has also ordered 26 rakes for transportation of Fly Ash. Ambuja has commissioned a 200Mw solar power (in December) and secured 631 mt of new limestone reserves.
The company is set to receive a bucket of incentives of around Rs 4,500 crore over the next seven to nine years. It plans to expand capacity to 140 mtpa by FY28 and the acquisition of Orient Cement will take current operating capacity to 97 mtpa (post-completion of acquisition) from 89 mtpa currently.
The capex for FY25 is estimated at Rs 8,000 crore and 9MFY25 capex stood at Rs 6,000 crore. The consolidated cash balance stood at Rs 8,760 crore as of December 2024. Cash outflow for Orient Cement acquisition is expected to be Rs 4,000 crore (excluding an open offer, which is expected in FY26) in Q4FY25. Ambuja is expected to close with a cash balance of around Rs 3,700 crore in March this year.
While analysts have reduced target prices due to the poor margins, many of them maintain Buy on the stock. According to Bloomberg, 25 of the 34 analysts polled post Q3 results are bullish; six have neutral/hold rating, and only three are bearish.
Their average one-year target price is Rs 607.71 for the stock which has slipped 6.13 per cent over two days (results announced on Wednesday during market hours) to close at Rs 509.45 on Thursday.
