The brokerage firm, Motilal Oswal, has revised its target price for Ambuja Cements lower to Rs 600 from Rs 750. This however, still indicates a 15% upside from the current market price of Rs 522. Although the brokerage firm has cut the target price, it continues to maintain a Buy rating.
Let’s take a look at the 3 key reasons why the firm has revised their stance. 1. Weak realisation and cost pressure
According to the brokerage firm, the primary reason for the downgrade in target price is due to a weak realisation coupled with rising operational costs.
In its report, the firm added that in Q3FY25, Ambuja Cement saw a significant drop in its consolidated EBITDA, which fell by nearly 49% YoY to Rs 8.9 billion. This was much lower than expected, with EBITDA per ton declining by 56% YoY to Rs 537, well below the estimated Rs 848.
Furthermore, the firm in its report added that higher operating costs, especially in newly acquired assets like Sanghi and Penna Cement, added pressure to earnings.
“The company is currently focusing on various cost-reduction initiatives as it navigates through the transition phase of its newly acquired assets,” added the firm in its report.
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Ambuja Cements reported a volume growth of 17% YoY, with a portion around 10% driven by inorganic expansions from Sanghi and Penna Cement.
“Currently, both companies are in the transition and ramp-up phase. We expect the full benefits of the acquisitions to materialize only by FY26,” said the brokerage firm in its report.
However, the management has indicated that plant capacity utilisation is expected to increase to over 70% in FY26. As per the brokerage firm, this progress will likely improve efficiency, but for now, margins are under pressure.
3. Increased exposure to South India, where prices remain depressed
Another concern that was raised by the brokerage firm in its report is the increased exposure to South India, a region where cement prices remain relatively low.
“Although the company has implemented price hikes, the Southern region remains a challenge due to pricing pressures,” the brokerage firm noted in its report.
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