This Cement Stock Backed By Adani Rallies After Q2 PAT Rises By Whopping 1,835% YoY; Buy Or Sell?

Adani Group's largest cement company Ambuja Cement held a bulls run on Thursday after the company's multi-fold rise in consolidated net profits in the September quarter of FY24. Ambuja shares have rallied at least 4% after the earnings report card. The stock continues to trade near its intraday high.

Ambuja shares jumped by 4.03% to hit an intraday high of Rs 423.15 apiece on BSE during the trading hours of Thursday. The stock currently trades at Rs 422.30 apiece, near its day's high with an upside of 3.82% on the exchange. The market cap is over Rs 83,854 crore.

The company posted a consolidated net profit of Rs 987 crore in Q2FY24, rising by a spell-bounding 1,835.29% or 19.35 times from PAT of merely Rs 51 crore in the same quarter last year. The performance was driven by strong growth in operating profits.

EBITDA came at Rs 1,302 crore in Q2FY24, up by 298.2% from EBITDA of Rs 327 crore in Q2 of FY23. While EBITDA margins also expanded to 17.5% from 4.6% in Q2FY23.

Also, the company's revenue from operations stood at Rs 7,424 crore, higher from Rs 7,131 crore in Q2FY23. Sales volume also picked up to 13.1 million tonnes in Q2 of FY24 as against 12.8 million tonnes in Q2 of FY23.

Ajay Kapur, Whole Time Director & CEO, of Ambuja Cements said, "Continuing our transformation journey, we are pleased to report a strong performance (standalone) in the second quarter of FY'24, with an 8% increase in revenue, 147% increase in EBITDA at Rs 773 Cr and 364% increase in PAT at Rs 644 Cr compared to the previous year same quarter. Along with strong demand for our premium cement products, our business performance improved due to operational excellence, supply chain management and sales & marketing excellence, Adjacencies benefits with Group companies are lowering input costs which is boosting EBITDA and margin growth."

Kapur highlighted that for the new facility of 4 MTPA at Bhatapara apart from Equipment which has been ordered, civil execution work has started. Expected completion by Q2 FY'26 For its corresponding Grinding unit at Sankrail and Farakka order has been placed on the EPC vendor and piling work has also started. Expected completion of these units by Q3 FY'25.

Also, for the new facility of 4 MTPA at Maratha LOI has been placed on the EPC vendor, Site development and Pre-project have been started. EC and CTE approval is expected in this quarter. Expected completion by Q4 FY'26, he said.

Should You Buy, Sell Or Hold Ambuja Cement shares?

According to Motilal Oswal, Ambuja Cements' consolidated cash balance e declined from Rs 1.65 billion (from Jun'23) to Rs 117 billion as of Sep'23, due to an increase in working capital and capex. Also, management continues to focus on cost-saving strategies; though the execution of its growth plan needs to be monitored.

"The stock trades at 14.3x/13.2x FY24E/FY25E EV/EBITDA. We reiterate our Neutral rating with a TP of Rs 450, based on 14x Sep'25E EV/EBITDA," Motilal's note said.

Meanwhile, Kotak Institutional Equities said, "We expect margins to firm up in 2HFY24, led by higher prices, muted costs and operating leverage. Management further plans to increase WHRS capacity to 175 MW (129/46 MW WHRS for ACEM/ACC) by FY2025E, whereas the current WHRS capacity is 90 MW, which should reduce power costs."

Further, Kotak's note said, "We have cut ACEM's consolidated EBITDA by 3%/5%/6% for FY2024/25/26E, mainly led by lower margins at ACC based on 1HFY24 performance. Our Fair Value for ACEM reduces to Rs350/share (from Rs355) on lower earnings, largely offset by rollover to December 2025E. Maintain SELL on rich valuations at 13X EV/EBITDA or US$170/ton EV FY2025E."

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