All New Cash-Rich Ambuja Cements Hits All-Time High But Brokerages Are Divided



Ambuja Cements and ACC shares rallied after the Adani Group completed the acquisition of the two firms last week to become the country’s second-largest cement player. However, brokerages were divided.


Buy / Sell Ambuja Cements share

Ambuja Cements and ACC shares jumped on Monday after the Adani Group completed the acquisition of the two firms last week to become the country’s second-largest cement player. However, brokerages were divided, with some seeing up to 45 percent upside in the stock while others awaiting Ambuja Cements’ extraordinary general meeting (EGM) with its shareholders on October 8.

Ambuja Cements shares rallied almost 10 percent in early deals to a record high of Rs 567.90 on BSE. The cement stock was trading 8.76 percent higher at Rs 561.55 at 11:15 am. ACC shares advanced more than 4 percent intraday and were up 2.62 percent at Rs 2683.25 at the time of writing.

While several brokerages have an underweight or sell stance on Ambuja Cements, Jefferies believes it’s time to upgrade it to ‘buy’ as the cement maker is set to seek shareholders’ approval for the appointment of Gautam Adani and others on the board and a Rs 20,000 crore cash infusion in the company through preferential allotment of warrants.
As the Adani Group, following the acquisition, aims to become the largest and most efficient cement player by 2030, Jefferies believes group synergy benefits should start coming in from the October to December 2022 quarter and accelerate over the next 1-3 years.

The brokerage has upgraded its rating on Ambuja to buy and revised the target price to Rs 620, meaning it sees a further 20 percent upside in the stock. It has retained its ‘buy’ stance on ACC with a target price of Rs 3,030.

“Given the faster growth trajectory for Ambuja under new leadership, we now value Ambuja’s consolidated EBITDA at 16x EV/EBITDA, one notch higher than 15x target multiple for Ultratech. Further, fund infusion by promoters (which we have only partly factored in given lack of details on Cash deployment) leaves option-value for higher acquisition-related growth in profitability,” Jefferies added.

Here’s a look at other brokerages’ ratings:

Brokerage  Ambuja Cements ACC 
Rating Target price Rating Target price
Jefferies Buy Rs 620 Buy Rs 3,030
JPMorgan Underweight Rs 309 Neutral Rs 2,110
Citi Sell Rs 340
Goldman Sachs Sell Rs 380
Investec Capital Services Buy Rs 752 Hold Rs 2,919
JPMorgan is of the view that there’s no clarity as yet on the Rs 20,000 crore fundraise. Post the warrant issuance, Ambuja Cements would become the most cash-rich company in the Indian cement sector, the brokerage said, adding that the aggressive new owners of the company are negative for its peers.

Citi, on the other hand, expects the fundraising to help in the group’s stated target to double capacity over the next five years. It, however, awaits further clarity on inorganic/organic plans and the use of proceeds of the issue of the warrants.

The commentary comes as Ambuja Cements has sought approval for allotment of preferential allotment of 47.74 crore warrants at a price band of Rs 418.87 to Harmonia Trade and Investment Ltd, a promoter group entity, totalling Rs 20,001 crore in one or more tranches. The warrant holder would pay a minimum amount of Rs 104.72, around 25 percent of the issue price at the time of subscription, and a further payment of Rs 314.15 at the time of exercise of the rights to convert into equity shares.

According to Investec Capital Services, the warrant’s issue signals the promoter’s commitment to the business (stake potentially rising to 70.15 percent) and enables management to chase growth and help realise synergies/cost efficiencies.

It has increased Ambuja Cements’ target price to Rs 752 per share, meaning it expects the share price to jump 45 percent from Friday’s closing price. The brokerage has downgraded ACC to ‘hold’ with a target price of Rs 2919 considering relative growth, and economic interest of promoters.

Investec Capital Services retained its preference for large-cap cement companies and highlighted consolidation as a theme to gather pace, which could potentially drive-up valuations in select midcap names, it said.