Hold Ambuja Cements; target Rs 225: Edelweiss Financial Services
Hold Ambuja Cements Ltd. at a price target of Rs 225.
The current market price of Ambuja Cements is Rs 219.10.
Time period given by the brokerage is one year when Ambuja Cements price can reach the defined target.
View of the brokerage on the company
Capex in line with LafargeHolcim’s recent capital commitment: ACEM’s capex announcement tracks the parent LafargeHolcim’s recent capital commitment for expansions in India—6.5mtpa plus clinker and 8.5mtpa plus cement by 2022.
Volume growth visibility: The enhanced capex imparts ACEM the much-needed volume growth visibility, details of which are as follows: a) clinker expansion plan at Marwar Mundwa (Rajasthan) increased to 3.1mtpa from 1.7mtpa; b) setting up additional 1.8mtpa cement grinding capacity; and c) capex for a CPP as well as WHRS. Its 50.1 per cent subsidiary ACC too has announced plans to add 3mtpa clinker in Ametha (MP) and 5.9mtpa cement (in four different locations, but largely in Central India). These expansions are primarily in the lucrative regions of North and Central India, where the industry’s clinker utilisations run at over 85 per cent and hence perceived to be positive.
Outlook and valuations- Growth capex; maintain ‘HOLD’: The expansion plan is a positive for ACEM and any further commitment to maintain market share could drive a valuation multiple upgrade. However, with volume benefits largely accruing from CY21 and our current valuation on CY19E offering limited upside (valuing ACEM at 12x EV/EBITDA and stake in ACC at 30 per cent Holdco discount) we maintain ‘HOLD/SU’.