Ambuja Cements Share Price Jumps 3% on Nomura's 'Buy' Double Upgrade.

Ambuja Cements shares surged over 3% on July 11 after brokerage firm Nomura upgraded the cement manufacturer to a 'buy' rating, citing the company's ambitious capacity expansion plans. Along with this upgrade, Nomura significantly raised its price target for Ambuja's stock from ₹500 to ₹780, marking an impressive 56% increase.

As of 09:29 am IST, Ambuja Cements share price were trading at ₹684.55 on the NSE. Nomura attributed this notable price target rise to Ambuja's expansion into new markets and its leading volume growth within the industry.

Ambuja Cements is set to acquire Penna Cement for ₹10,422 crore, adding a capacity of 9 million tonnes per annum. Nomura highlighted that this acquisition is projected to result in a 14% compound annual growth rate (CAGR) in capacity for Ambuja from FY24 to FY26, compared to 6% for the industry and 9% for Ultratech.

The acquisitions of Penna and Sanghi Industries have not only allowed Ambuja to penetrate new markets but have also positioned it as the third-largest cement producer in the South India market. Additionally, these acquisitions offer Ambuja significant brownfield expansion opportunities due to substantial limestone reserves.

After the completion of Penna’s acquisition, Ambuja is set to become the third-largest player in Southern India behind only Ultratech and Ramco. Sanghi and Penna also provide brownfield optionality to Ambuja with 823MT and 610MT of limestone reserves, respectively, the analyst said.

Nomura pointed out that the increased brownfield potential, along with Ambuja's cost-optimization strategies, contributed to the revised price target. Ambuja Cements aims to reduce its operating cost per tonne by ₹300 by FY26, driven by robust capacity expansion, market entry, and cost-saving measures.

Furthermore, Nomura believes that lower heat consumption and a higher share of green power will enhance savings for Ambuja Cements. The brokerage also sees potential for another phase of inorganic expansion, further strengthening Ambuja's market position and growth prospects.

Ambuja is on track to add 24 metric tonnes of capacity by fiscal year 2025-26 through a combination of organic and inorganic expansions. Nomura stated that its estimates for Ambuja's volumes and earnings before interest, tax, depreciation, and amortization (EBITDA) from FY24 to FY26 slightly exceed those of Ultratech.