Buy Ambuja Cement; target of Rs 692: Prabhudas Lilladher

Mumbai, July 3, 2025 – Brokerage firm Prabhudas Lilladher has maintained a bullish stance on Ambuja Cements Ltd., issuing a "Buy" rating with a revised target price of ₹692, reflecting an upside potential of nearly 20% from current levels. The upgrade comes on the back of robust volume growth, margin improvement, and strategic capex initiatives under the Adani Group’s stewardship.

Operational Strength and Strategic Capex Underpin Optimism

Ambuja Cement, one of India’s leading cement manufacturers, has been executing a multi-year capex plan, including expansions, modernization of plants, and integration of sustainability into operations. Prabhudas Lilladher highlighted that the company is on track to achieve 110 million tonnes per annum (MTPA) of capacity by FY28, up from the current 78.9 MTPA.

“We believe Ambuja is entering a structural upcycle driven by capacity additions, synergies with ACC, and a clear strategy from the Adani Group,” said Ravi Sodhani, Research Analyst at Prabhudas Lilladher. “Volume CAGR is expected to be in the range of 11-13% over FY25–FY28, with EBITDA per tonne expanding significantly due to cost efficiencies and backward integration.”

Margin Expansion Drives Valuation Rerating

The brokerage projects EBITDA margins to improve to 21% by FY27, compared to 16.4% in FY24, led by better operating leverage, energy cost optimization, and higher usage of alternative fuels. The company’s increased focus on logistics optimization and fly ash usage is expected to reduce power & fuel costs, which account for over 30% of total production expenses.

The report further states that Ambuja Cement’s EBITDA/tonne is likely to reach ₹1,250 by FY27, from the current ₹940. This improvement would translate into an estimated FY27 EBITDA of ₹16,200 crore, boosting overall profitability and cash flows.

Market Context: Cement Sector in Growth Phase

India’s cement industry is poised for a strong growth cycle, fueled by government infrastructure initiatives, rising urbanization, and robust real estate demand. According to CRISIL, cement demand is expected to grow at 7-8% CAGR through FY28, driven by both rural housing and commercial construction.

Ambuja, with its pan-India footprint and logistics network, stands to benefit significantly from this demand surge. Its integration with ACC Ltd., also part of the Adani Group, creates meaningful operating synergies and cost-sharing mechanisms.

“Ambuja’s scale, balance sheet strength, and forward-looking expansion plans give it an edge in a highly competitive industry,” said Nikhil Agrawal, a sector expert at Equirus Capital. “It is positioned well to leverage the next infrastructure-led economic cycle.”

Financial Snapshot

• Current Market Price (CMP): ₹578 (as on July 2, 2025)

• Target Price: ₹692

• Upside Potential: ~20%

• Market Cap: ₹1.15 lakh crore

• FY24 Revenue: ₹35,982 crore

• Debt/Equity: 0.17x

• Promoter Holding: 63.1%

The brokerage also highlights Ambuja’s strong balance sheet with minimal leverage and a healthy cash position, allowing flexibility to invest in new plants, clinker units, and green power projects.

ESG Focus and Sustainability Goals

Ambuja continues to enhance its Environmental, Social, and Governance (ESG) credentials, targeting a carbon footprint reduction of 40% by 2030, supported by the increased use of alternative fuels and renewable energy. The company is also investing in waste heat recovery systems (WHRS) and solar power plants to lower its dependence on thermal power.

“Sustainability is becoming a key differentiator in cement. Ambuja’s aggressive investments in green energy will not only lower costs but also attract ESG-focused capital,” noted Sodhani.

Investor Outlook: Long-Term Compounder with Capital Efficiency

From an investor perspective, Ambuja Cement is emerging as a long-term compounder in the cement sector. Its return on capital employed (ROCE) is forecasted to cross 20% by FY27, supported by higher realizations, scale benefits, and tight cost control.

The stock is currently trading at EV/EBITDA of 13.1x FY26E, which analysts believe is attractive considering the company's growth visibility, execution capabilities, and operational moat.

Prabhudas Lilladher recommends accumulating the stock on dips, with the view that Ambuja will continue to outperform peers both in terms of volume growth and margin resilience.

Risks to Outlook

While the long-term thesis remains intact, analysts caution against short-term risks such as:

• Volatility in input costs (particularly pet coke and diesel)

• Delays in capacity commissioning

• Any regulatory hurdles related to environmental clearances

• Intense competition in southern and eastern markets

However, the brokerage maintains that these risks are manageable and largely factored into the base-case valuation.