ICICI Direct is bullish on Ambuja Cement has recommended buy rating on the stock with a target price of Rs 365 in its research report dated April 12, 2021.
Broker Research
April 13, 2021 / 10:50 AM IST
ICICI Direct’s research report on Ambuja Cement
Ambuja Cement in its AGM has laid out ambitious growth plans to increase its capacities in India with the target of becoming a 50 MT player from current 29.7 MT. In terms of regions, the company is exploring opportunities in the markets of East and West India, with brownfield expansions in Bhatpara and Maratha plants. While its upcoming facility in Marwar Mundwa, Rajasthan will enhance clinker capacity by 3 MT, it would help improve cement sales by ~5 MT. Apart from this, the company is also looking at significant debottlenecking opportunities across all its plants to further enhance their cement capacity. Given the strong demand outlook, we believe these move would allay the growth concern, also enable it to capture the lost market share and maintain its position. Further, deployment of strong operating cash towards capacity expansion in an efficient manner would improve return ratios. Given these developments, we now upgrade the stock from HOLD to BUY recommendation.
Outlook
With the growth concerns now being addressed, we expect Ambuja to get back to industry leading growth trajectory as and when this new capacity comes on stream. While we await clarity on the timeline and the quantum of amount required for these expansions, we revise our target multiple upwards to factor in this positive development and upgrade our rating from HOLD to BUY with a revised target price of Rs 365/share (i.e. at CY22E EV/EBITDA of 14.0x, implied EV/tonne of $ 154/t, factoring in additional 15 MT for Ambuja, earlier TP: Rs 305).
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