Cement prices across India have not seen substantial correction in recent months, thus indicating a downgrade in the company's earnings outlook.
Ambuja Cement Limited stock has been in focus recently. It is under pressure after the fall in shares of Adani Group. The stock fell 5% in early trading on Thursday. It has declined by about 31 per cent so far this calendar year.
Amid this already dismal 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 volume at 7.7 million tonnes grew sequentially and on a year-on-year basis. Despite this, the road ahead is not likely to be an easy one for the company.
And there are many reasons for this.
In the earnings call, the management reiterated its target to achieve a capacity of 140 million tonnes per annum (mtpa) over the next five years from the current capacity of 67.5mtpa. According to some analysts, this is an ambitious target, with a concrete roadmap to meet it yet to be spelled out.
Remember, competitors UltraTech Cement Ltd and Shree Cement Ltd have also announced capacity additions in recent quarters. In such a situation, the competition to gain market share is likely to intensify.
Secondly, despite pick up in construction activities, cement prices across India have not seen substantial recovery in recent months. Thus, indicating a downgrade in the company's earnings outlook.
Analysts at Jefferies India Pvt Ltd said, "Given that Ambuja/ACC is already operating at 85%+ utilisation, a clearer outlook on expansion will put a dent on volume estimates." The past few weeks despite peak construction season; We have cut our FY24/FY25 estimates by 12-14% to reflect this, the report said.
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