Ambuja Cements: A Good Enterprise Mannequin in Short-term Misery on Adani Turbulence

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The current truthful worth of Ambuja Cements (NS:) perhaps round 295; might scale 575-600 ranges by Dec’25

Ambuja Cements (ABUJ) is among the main Indian corporations, engaged in manufacturing cement, cement-related merchandise, and clinkers. Ambuja Cements has a variety of merchandise for business-to-business (B2B) and retail markets (B2C). The Firm’s product, Ambuja Plus Roof Particular, is fitted to establishing roofs and slabs; it additionally provides to put in rooftop rainwater harvesting know-how. Its merchandise additionally embody Ambuja Powercem, which caters to the ready-mix (RMX) sector;

Ambuja Railcem, which is designed for railways, and Ambuja Buildcem, which serves the necessities of the mass housing section. Ambuja Cements additionally co-owns two manufacturers within the micro supplies class. These embody Alccofine, which features a vary of micro slag supplies, and Dirk Pozzocrete, which incorporates superfine fly ash. Alccofine Micro Supplies are utilized in development tasks, reminiscent of metro rail, dams, roads, flyovers, bridges, and tunnels.

Ambuja Cements additionally sells clinker for each home and export markets. The corporate has entered right into a strategic partnership with Holcim (SIX:), the second-largest cement producer on the earth since 2006. Holcim had, in January’2006, purchased a 14.8% promoters’ stake within the GACL (Gujrat Ambuja Cement Ltd) for Rs.21.4B. From 2010 to 2022, Holcim held a 61.62% controlling stake in Ambuja Cements. On 14th April 2022, Holcim introduced that it will exit from the Indian market after 17 years of operations as a part of a technique to give attention to core markets, and listed its stakes in Ambuja Cements and ACC (NS:) on the market.

On fifteenth Might’2022, Adani Group formally introduced that it will purchase Holcim’s stake in Ambuja Cements and ACC for $10.5B. In Sep’22, Adani group purchased Holcim (Swiss big) stake in Ambuja Cement and ACC for round $6.40B to develop into India’s 2nd largest cement participant. Holcim bought its whole 63.15% stake in Ambuja Cements, which owns a 50.05% curiosity in ACC, in addition to its 6.64% direct stake in ACC. Adani group now has round 63.1% stake in Ambuja Cement straight; i.e. Adani group is now the brand new promoter of each the corporate (Ambuja Cement and ACC).

Adani Cement or Adani Cement Industries Restricted (ACIL) is a cement firm based mostly in Gujarat. It was integrated by Adani Group on June’21. Adani Cement is a wholly-owned subsidiary of Adani Enterprises (NS:) and has not begun its enterprise operations. It was reported in June’21 that the Adani Group deliberate to arrange a cement plant in Maharashtra which could have an preliminary capability of 5 MT/annum with an approximate funding of INR 100B The Group has additionally proposed a 10MT/annum Lakhpat cement plant, however later put the plans for that plant on maintain.  

Now, Adani Cement primarily consists of Ambuja Cement and ACC; Adani can also merge these two cement corporations into Adani Cement finally within the coming days. Adani Cement (Ambuja Cement + ACC) now goals to double the capability from 67.5 MTA to 140 MTA to serve rising infra and housing demand throughout India together with Adani group’s numerous infra tasks.

As per the Adani group, at present, Ambuja Cement has a cement capability of 31MT with six built-in cement manufacturing vegetation and eight cement grinding items throughout the nation. The corporate has many firsts to its credit score – a captive port with 4 terminals that has facilitated well timed, cost-effective, cleaner shipments of bulk cement to its clients. To additional add worth to its clients, the corporate has launched revolutionary merchandise like Ambuja Plus, Ambuja Cool Partitions, Ambuja Kawach, and Ambuja Cement Compocem. The brand new merchandise not solely fulfill essential buyer wants but additionally assist in considerably lowering carbon footprints. Ambuja Cement has supplied hassle-free, home-building options with its uniquely sustainable growth tasks and environment-friendly practices because it began operations.

Quick ahead, now being part of the beleaguered Adani group, Ambuja Cement scrip additionally ran far forward of its fundamentals in 2022 from round 275 to 600 after which stumbled to nearly 315 a number of days in the past after the Hindenburg bombshell analysis report. Though Hindenburg didn’t accuse Ambuja Cement straight of any fraudulent exercise, Ambuja Cement’s scrip is caught within the crossfire. However Ambuja Cement is an effective asset/enterprise mannequin, which is in short-term misery as a result of Adani proximity.

The market could also be additionally involved in regards to the leverage of the Adani group, which additionally pledged a major a part of the promoter’s stake to fund the Ambuja/ACC acquisition deal. In any method, after the Hindenburg controversy, the Adani group might prepay lenders, which partly financed the Adani takeover deal of ACC/Ambuja cement. Nonetheless, the market could also be additionally involved that Adani will use the optimistic money movement of those two cement property (Ambuja/ACC) to repay debt and fund different CAPEX.

Highlights of Q4CY22 report card: Ambuja Cement (Consolidated-INR 100 Cr=1B)

·         Core working income Rs.79.07B vs 71.43B sequentially (+10.69%) and 76.25B yearly (+3.69%)
·         Working bills Rs.68.98B vs 68.09B sequentially (+1.32%) and 64.97B yearly (+6.18%)
·         EBITDA Rs.10.08B vs 3.34B sequentially (+201.47%) and 11.28B yearly (-10.63%)
·         Curiosity fee Rs.0.4304B vs 0.4051B sequentially (+6.25%) and 0.3820B yearly (+12.67%)
·         Core working revenue (EBTDA=EBITDA-INTT) Rs.9.65B vs 2.94B sequentially (+228.38%) and 10.90B yearly (-11.45%)
·         Core working EPS (EBTDA/Share) Rs.4.86 vs 1.48 sequentially (+223.38%) and 5.49 yearly (-11.45%)
·         EBITDA margin 12.75% vs 4.68% sequentially (+8.07 bps) and 14.80% yearly (-2.04 bps)
·         Curiosity/EBITDA: 4.27% vs 12.11% sequentially (-7.84 bps) and three.39% (+0.88 bps)
·         The sequential leap in core working EPS and EBITDA margin as a result of decrease price of gas (coal) and logistics
·         Diminished price of gas/coal as a result of maximization of low-cost home coal and nil import of U.S. petcoke
·         Mounted worth long-term contract to mitigate worth volatility
·         Enlargement of inexperienced area (personal) coal mine at Gare Palma and group synergies on coal procurement
·         Decrease logistic prices as a result of serving short-led markets on to clients (~40% of gross sales quantity inside 150 km market
·         Improved synergies between Ambuja and ACC to cater to pure markets on the lowest logistic prices
·         Enchancment within the rail-road transportation combine
·         Planning CAPEX  to extend possession of rail rakes
·         Additionally enhancing transport by way of delivery/coastal motion at decrease logistic prices
·         Enhancing plant efficiencies, utilization of alternate/inexperienced gas, increased vitality efficiencies to cut back energy consumption, and taking steps to cut back packing bag price by 15% with assured long-term provides
·         Debottlenecking initiatives at numerous vegetation to enhance capability by 2-3 MTA
·         Uncooked materials (RM) price is anticipated to cut back by 5%
·         Fly ash dryer for the utilization of moist fly ash
·         Lengthy-term contract with Thermal energy corporations to carry down fly ash price by 15%
·         Changing pricey gypsum with low-cost phospo-gypsum
·         Higher/rising demand and steady costs for cement and clinker with capability utilization at 81%
·         Enhancing EBITDA/Ton (Rs.829 vs 340 sequentially and 854 yearly) as a result of increased gross sales of premium merchandise
·         Decrease RM price; anticipated -15% in FY24
·         General demand progress is anticipated to stay optimistic, facilitate increased capability utilization, and price discount/optimization will lead to increased EBITDA

Highlights of December QTR earnings concall: Ambuja Cement (eighth Feb’23)
·         The primary full-fledged quarter below the brand new promoter, Adani Group.
·         The corporate has in an actual sense launched into a transformational journey, which has resulted in sizable operational efficiencies throughout all of the enterprise parameters and which has resulted in a superb leap within the monetary efficiency quarter-on-quarter
·         On the trade degree, the cement trade noticed increased capability manufacturing with a superb pickup in demand through the quarter
·         We’ve seen a wholesome enhance in our high line of round 11%, coupled with a superb discount within the total price led by decrease gas, RM, and logistic prices together with different operational efficiencies together with higher synergies between numerous Adani teams of corporations resulting in increased EBITDA margin sequentially
·         Higher synergies between Ambuja-ACC and different Adani group corporations
·         The highest line is anticipated to develop wholesome going ahead as a result of rising demand, new capability utilization, and debottlenecking of further capability and asset sweating
·         Robust product portfolios and model values together with premium merchandise in core markets
·         Anticipated increased demand for cement as a result of increased authorities CAPEX for infra and housing
·         Higher efficiency on a standalone foundation than total consolidated
·         Just about debt free with money in hand round Rs.94.54B will assist each natural and inorganic enlargement to attain scale, market management, and better profitability/margin enlargement (by lowering price)
·         Higher administration of the working capital cycle
·         Taking additional steps to strengthen ESG management by way of the sustainable growth plan
·         Aiming to double capability to 140MT by the following 5 years as dedicated by Adani group throughout take over
·         Presently emphasizing natural/debottlenecking (greenfield & brownfield) enlargement to reinforce the working capability
·          Stressing on vitality saving price and synergies between numerous Adani group corporations for uncooked supplies and completed merchandise ecosystem leading to higher synergies and optimization of OPEX
·         No foul play between associated entities (group corporations/subsidiaries) for coping with coal; all cola buying and selling/provide is as per regulatory framework/rule making certain ‘arm’s size precept
·         Provide of coal by Adani group corporations leading to decrease gas price to some extent
·         The current synergy between Ambuja Cement and ACC below Adani Cement resulted in a number of price financial savings, however an official merger will not be on the desk proper now; might occur later
·         No foul play within the CAPITAL ADVANCE entry in Ambuja Cement B/S and it’s part of regular CAPEX
·         No remark in regards to the promoter’s (Adani) private debt to amass Ambuja Cement and ACC (whether or not the promoter can use Ambuja/ACC optimistic money movement); however there’s a definitive dividend distribution coverage in place
·         The corporate is seeking to leverage Adani port’s coastal/sea transportation synergy to optimize price and OPEX
·         As of now Ambuja/ACC is paying advance funds to varied authorities corporations for coal, and fly ash for safe provide; however the firm (Adani Cement) can also be exploring such provides from numerous group corporations as per the RPT pricing mechanism, which is able to guarantee optimization of OPEX as there is probably not any requirement of advance fee
·         There will likely be additionally synergy in railway transportation (by profiting from utilizing personal railway wagons below the railway scheme)
·         Regardless of aiming to be decrease price cement producer, Adani Cement won’t undercut the market (by chopping costs); it’ll stress on increasing into a brand new market to cater to robust manufacturers of Ambuja/ACC
·          However for B2B massive purchaser section (numerous authorities/non-public infra tasks); it might make use of numerous pricing methods to win the market
·         Presently Ambuja and ACC are working as separate cement divisions below frequent Adani Cement administration, which is making certain price optimization synergy making certain profitability of each entities individually with out battle of curiosity
·         Regardless of procurement synergies with numerous group corporations, all particular person firm is making certain their enterprise curiosity by making certain arm’s size and truthful pricing technique; i.e. it won’t have an effect on the monetary efficiency of any group firm and likewise on the discretion of any particular group firm
·         Ambuja has a captive coal mine at Gare Palma, which caters to nearly 20-25% of the general coal requirement of Ambuja; however ACC has no such captive coal mine and is thus utterly depending on third social gathering provide together with imports
·         Ambuja/ACC was already below numerous cost-saving applications lengthy earlier than the Adani takeover, however the Adani group is now making an attempt so as to add worth thereby optimizing/reducing the price of gas, RM and logistics as a result of numerous synergies with group corporations
·         Business (cement) demand will develop by round 8-10% CAGR if the financial system continues to develop round 6-8% (actual GDP)
·         The corporate believes in India’s progress story will guarantee a lot increased per-capital cement consumption within the nation within the coming years
·         EBITDA/Ton will likely be in 4 digits in coming quarters (presently at round 829/-)
·         Presently Adani Cement is paying some royalty fee to Holcim, however from March QTR, there will likely be no such fee and the corporate is anticipated so as to add round Rs.2.70B in money movement
·         IT transition from the Holcim group is now nearly full
·         The corporate is anticipated to finish all of the CAPEX-related expansions/debottlenecking by mid/late 2024; might present extra particulars throughout March’23 earnings concall
·         A brand new promoter (Adani) is infusing recent capital into the corporate as per dedication, however Ambuja cement has already round Rs.90.50B free money in hand whereas producing round Rs.40.50-50.00B money from operations yearly; thus having substantial cash-rich firm together with zero debt standing, CAPEX quantity will not be a problem

Below the banner of Adani, Ambuja Cement is now aiming to extend EBITDA margin by numerous price/group synergies coupled with the enlargement of capability to cater to rising demand in India, anticipated to be round +10% CAGR according to nominal GDP growths and the federal government emphasize on infra/housing CAPEX. India’s cement manufacturing capability is now estimated at round 525 MTA, which can attain round 600 MTA by 2025; i.e. a mean CAGR of round 7% towards a projected demand enhance of round 10%. India’s cement manufacturing reached 329 MTA in FY20 and is projected to succeed in 381 MTA by FY22 towards the consumption of round 327 MTA (FY20) and an estimated 379 MTA (FY22).

There’s additionally good pricing energy because the cement trade is now in a digital cartel among the many high 10 gamers after consolidation, JV, MSA, and so forth in the previous couple of years. India’s top-10 cement gamers at the moment are Extremely Tech (market share 25%), Adani Cement (14%-Ambuja + ACC), Shree Cements (NS:) (7%), Dalmia Bharat (5%), Birla Corp (3%), India cement (3%), Orient Cement (1%), and Heidelberg Cement (2%). India is the 2nd largest producer of cement on the earth after China and accounts for greater than 7% of the worldwide put in capability. The federal government’s thrust on numerous infra tasks together with transport, inexpensive housing, and the development sector is a large enhance for the cement trade. Additionally, numerous state elections in 2023 earlier than the early 2024 common election, the G20 presidency, and the probably bid for the 2035 Olympics by India might lead to considerably increased infra spending and cement.

The Indian Federal and state authorities might spend over Rs.20T for infra in FY24 throughout numerous tasks from transportation (railways and roads), healthcare, schooling, housing, and concrete/rural growth. Trying forward India may also spend a cumulative Rs.100T from 2022-27 for numerous infra tasks below PM Gati (NS:) Shakti’s plan. All these require incremental/big quantities of cement. India has the benefit of the prepared availability of uncooked supplies for making cement, reminiscent of limestone, gypsum, fly ash, and coal (inexpensive gas).

Honest valuation: Ambuja Cement: Rs.293 (Current); Rs.367-458-573 (CY23-26)


Ambuja Cement reported a core working EPS of round Rs.9.38 in CY22 towards 15.27 in CY21, 12.25 in CY20, 11.15 in CY19, and 9.67 in CY18. Now contemplating numerous professionals & cons as mentioned above, Adani’s efforts to optimize the price of manufacturing, and the anticipated surge in demand for cement amid the federal government’s infra thrust, Ambuja Cement might report +25% CAGR in core working EPS from CY23-26. Thus assuming core working EPS round 11.73-14.66-18.33-22.91 and a mean core working PE of 25, the truthful worth could also be round 293-367-458-573. Because the monetary market usually reductions 1Y projected EPS prematurely, Ambuja Cement might scale 367-458-573 by Dec’23-Dec’24 and Dec’25.

Threat: Proximity of Adani group

The credibility of the Adani group could also be far under that of Tata, and Reliance (NS:) (below Mukesh Ambani) for a protracted, however it’s a recognized truth and most of Hindenburg’s report contents/allegations are nothing new. However on the identical time, no massive industrialist/enterprise entity is a saint; they’re improvising as per evolving political and financial scenario/actuality within the nation. Adani Enterprise is concerned in numerous conventional infra and utility tasks, which have a usually lengthy gestation interval, capex heavy, and low working margins. Adani Enterprise is anticipating India’s progress story will replicate in its progress.

Now even contemplating its proximity with the present Federal Authorities of India (Modi/BJP) and likewise numerous non-congress and even congress-ruled state governments and infra thrust forward of the G20 occasion, 2024 common election, and certain massive sporting occasions within the subsequent 10-20 years, the transition from fossil gas to EV, all infra/utility/cement corporations together with Adani can also report strong progress in EBITDA within the coming years.

Thus with out contemplating the Hindenburg report/allegations, Adani’s reply, and present political controversies, if we solely imagine in Adani’s monetary statements, administration commentaries, and potential India/Adani progress story, a world-class cement asset like Ambuja could also be a lovely funding within the present disruptive scenario, particularly if we think about nearly zero debt for Ambuja stability sheet (in contrast to different Adani group corporations that are extremely leveraged).

In any method, Adani is an influential group. Nevertheless, it’s not come below ‘too big to fall’ for the Indian financial system, the federal government won’t enable it to fall below any circumstances for the monetary market and likewise political/BJP stability. Thus regardless of numerous controversies, the Adani group might survive as a result of its proximity with the Modi authorities and likewise numerous opposition events (offering an enormous political donation to not solely BJP but additionally numerous different opposition events together with INC and TMC like all different massive enterprise homes).

Regardless of big falls in share costs for numerous Adani group corporations, there’s little panic amongst massive Adani lenders and even available in the market as sensible traders/merchants/HNI (together with Ambani/Adani) all do brief promote by way of numerous fronts (straight/not directly) even their very own corporations in instances of misery to make the most of the volatility and doable margin name. This time, Adani can also be in a position to meet the margin name with none massive points.

Trying forward, no matter will be the narrative, technically, Ambuja Cements has good positional assist round 315; and sustaining above 370, it might scale 400/475-525/600 within the coming days. Breaking under 315, it might fall additional to 275, which is one other good assist; but when maintain under 270, it might additional fall to 240/225-200/135 within the worst-case situation.


Ambuja Cements: Consolidated P&L A/C: Q4CY22


Ambuja Cements: Consolidated P&L A/C: CY22


Ambuja Cements: Consolidated B/S: CY21


Ambuja Cements: Consolidated money movement



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