Ambuja Cements Q4 net profit grows 1.6%. Should you buy, sell or hold?

While the management has reiterated plans to double group cement capacity to 140 million tonnes in five years, Kotak Institutional Equities finds the target ‘too ambitious’

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Ambuja Cements shares fell over 3 percent on May 3, a day after the company announced standalone profit of Rs 502.4 crore for the quarter ended March FY23, a 1.6 percent growth over a year-ago period.

Revenue on the standalone basis grew only by 8.4 percent year-on-year to Rs 4,256.3 crore for the quarter with sales volumes increasing by 8 percent YoY to 8.1 million tonnes, the Adani group company said in its filing to exchanges.

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Here is what brokerages have to say about the earnings and the stock:

According to Morgan Stanley, Ambuja Cement’s EBITDA at Rs 788.3 crore was in-line with expectations, while the revenue was slightly better, offset by higher operating expenses.

Morgan Stanley’s analysts said the medium-term expansion plans are intact but the near-term growth is expected to remain low.

“Profitability should improve with group synergies playing out. Overall, the risk-reward looks balanced for the company,” they said in a report, giving the stock “equal-weight” rating with target price at Rs 380 a share.

CLSA has maintained an “underperform” rating for Ambuja Cements with target price at Rs 395. It factors in a 9 percent volume CAGR (compounded annual growth rate) over FY23-26 and an EBITDA/tonne CAGR of 15 percent.

Analysts at Nuvama Institutional Equities like the “impressive” cost reduction. Fuel costs per tonne and other expenses were down 19 percent and 18 percent from last quarter, respectively.

“In the backdrop of anticipated aggressive capacity growth and huge potential to optimise cost, the current valuations of ~16x FY24E and ~13.2x FY25E EV/EBITDA appear attractive,” the analysts said.

Nuvama has a “buy” rating on the stock with a target price of Rs 458.

While the management reiterated plans to double group cement capacity to 140 million tonnes in five years, Kotak Institutional Equities finds the target “too ambitious”.

“We have cut consolidated EBITDA estimates by 6 percent/13 percent, led by lower volumes, given the delay in capacity expansion and recent performance,” the brokerage said. It has a Sell rating on the stock with target price of Rs 340.

At 1.30 pm, the stock was trading at Rs 380.15 on the NSE, down 3.6 percent from the previous close. It erased all gains after hitting an intraday high of Rs 400.55.

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