ICICI Direct Bets On This Multibagger Cements Stock, Sees Potential Upside Of Upto 19%

ICICI Direct, a leading brokerage firm, has placed a buy call on Ambuja Cements Limited in its recent report published on October 25, 2022. The brokerage sees a potential upside of up to 19% with a given target price of Rs 610 per share. It is a large-cap cement sector company of Adani Group having a market capitalisation of Rs 1,01,883 crore.

Business Overview

Ambuja Cement (now Adani group conglomerate part) is a large cement player with 31.5 MT capacity spread across north (35%), south (24%), west (~20%), east (~21%) in India. It has a large marketing set-up & pan-India presence.  The upcoming new capacity in Punjab (1.5 MT) and eastern region (7.0 MT including clinker 3.2 MT) will enhance its cement capacity by ~8.5 MT to 40 MT. In phase II, the company plans to reach over ~50 MT capacity through capacity expansion in western region along with significant de-bottlenecking. The management plans to double its consolidated capacity to 140 MT (ACC + Ambuja) from current 70 MT in the next five years.

Stock Outlook & Returns

The stock's current market price (CMP) stood at Rs 513.10 per share on NSE. Its 52-week low level is Rs 274 recorded on 08 March 2022, and the 52-week high is Rs 585.70 recorded on 20 September 2021, respectively. 

The stock in the past 1 week has gained 1.03%, whereas, in the past 1 month, it fell by 4.87%. In 3 months, it has given 38.25% positive return. The stock has given 36.5% positive return over the past 1 year. In the past 3 years, the stock has given a multibagger return of 159.86%. In the past 5 years, the stock has given 82.11% positive returns.

Q3CY22 Results

The brikerage said, "Ambuja Cement's results remained below our estimates". Net revenues were up 13.4% YoY to Rs 3670.4 crore while it declined 8.1% QoQ due to monsoons. EBITDA margins were down 885 bps QoQ to 8.3% (lower than our estimate of 12.3%), led by higher power & fuel expenses (up 63% YoY, 17.5% QoQ). PAT declined 68.7% YoY, 86.8% QoQ to Rs 137.9 crore due to lower margins.

Buy for a target price of Rs 610 per share

Strong brand with pan-India presence, cost efficient and robust balance sheet are key positives.  With aggressive expansion strategy and focus on cost efficiencies, we expect healthy revenue growth in CY21-23E despite high base. Hence, we maintain BUY rating. We value Ambuja at Rs 610 i.e. 21x CY23E EV/EBITDA.

Key triggers for future price performance

The management plans to increase consolidated capacity to ~140 MT in the next five years (i.e. at 16% CAGR). Promoter to make equity infusion of Rs 20,000 for the said purpose.

The new clinker capacity at Marwar Rajasthan (1.8 MT cement, 3 MT clinker) and GU in Punjab (1.5 MT) to come on stream by end of CY23 while capacity expansion (7 MT cement, 3.2 MT clinker) in the east (capex of Rs 3500 crore) is likely to get completed by Q4CY24E.

It has strong b/s. Also, the group's exposure to energy and logistics will help them to improve cost dynamics and gain supply chain efficiencies.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.