The many worries for Ambuja Cements investors

Amid this already bleak scenario, the company’s December quarter earnings performance doesn’t offer much comfort. The cement maker’s standalone revenue and Ebitda were better than expected and sales volumes at 7.7 million tonne, rose sequentially and on a year-on-year basis. Despite this, the road ahead for the company is unlikely to be a smooth one.

And there is a slew of reasons for that.

In an earnings call, the management reiterated its target of achieving a capacity of 140 million tonnes per annum (mtpa) in the next five years from the current capacity of 67.5mtpa. According to some analysts, this is an ambitious target, also, a solid roadmap to meet this has not been spelled out, yet.

Remember, competitors Ultratech Cement Ltd and Shree Cement Ltd have also announced capacity additions in recent quarters. So, the chase for market share gains is likely to get intense.

Secondly, cement prices across India have not seen an adequate improvement in recent months, in spite of a pick-up in construction activities. Thus, prompting a downward revision in the company’s earnings outlook.

“Given Ambuja/ACC are already operating at 85%+ utilisation, a clearer outlook on expansions would have driven comfort on volume estimates,” said analysts at Jefferies India Pvt Ltd. Added to this, there has been a weakness in industry pricing for the past few weeks despite peak construction season; we cut our FY24/FY25 estimates to reflect this by 12-14%, said the report.

But that’s not all. Analysts at Motilal Oswal Financial Services have cut their FY25 earnings per share estimate on Ambuja by 20% due to issuance of convertible warrants to the promoter group entity. The brokerage firm assumes this to be subscribed and converted into equity shares in FY25.