Ambuja Cements Upgraded To 'Buy' By Nomura On Aggressive Capacity Expansion

Nomura Research has upgraded Ambuja Cements Ltd. to 'buy' from 'reduce' as the company continued its aggressive capacity expansion and its above-industry volume growth. The brokerage also raised the target price to Rs 780 per share from Rs 500 apiece earlier, implying a potential upside of 17.5% from the previous close.

The Adani Group's cement arm is set to become the third-largest player in southern India after the acquisition of Hyderabad-based Penna Cement Industries Ltd. Nomura's ratings outlook still does not take into account Penna's capacity yet, it said in a note on July 10.

Ambuja Cements will acquire Penna Cement Industries at an enterprise value of Rs 10,422 crore to increase its footprint in southern India. The acquisition will be fully funded through internal accruals and the deal is expected to be completed within three to four months.

The brokerage cited the company's aggressive capacity expansion, entry into newer markets, above-industry volume growth, increased brownfield optionality and cost-optimisation measures for outlook upgrade.

The cement major is in the process of adding 24-million-tonne capacity by the next financial year through a series of organic and inorganic expansions. Ambuja has a 20–25-MT brownfield optionality, suggesting around 10 MT of inorganic expansion to meet its ambitious capacity target of 140 MT by fiscal 2027, according to Nomura.

A lower heat consumption and higher share of green power to result in cost savings, it said. "We expect Ambuja to reduce its operating cost/tonne by Rs 300 by FY26."