On Friday, CLSA upgraded Ambuja Cements (NS:ABUJ) Ltd. (ACEM:IN) from a rating of Hold to Outperform, increasing the price target to INR645.00 from INR600.00. The upgrade reflects a positive outlook on the company's future performance, as the analyst from CLSA anticipates improvements in the cement sector, driven by increased government capital expenditures and potential for the industry to maintain pricing discipline due to currently low profitability.
The analyst emphasized that the past six months presented a challenging environment for the cement industry, characterized by low demand and weak pricing. However, with government capital expenditures on the rise, there is a potential for the industry to recover and sustain pricing levels.
Ambuja Cements is expected to benefit from this environment as it is on track to commission 19 million tonnes in cement capacity expansion projects. These expansions are anticipated to enhance the company's production capabilities significantly.
Moreover, Ambuja Cements is also projected to advance in its cost-saving initiatives. The company is likely to see benefits from increased usage of renewable power and reduced lead distances, which are expected to contribute to lowering operational costs.
The revised price target of INR645.00 is based on rolling forward to December 2026 and applying a slightly higher target EV/Ebitda multiple of 16.4x, up from the previous multiple of 15.9x. This adjustment suggests a more optimistic valuation of Ambuja Cements' earnings before interest, taxes, depreciation, and amortization in the coming years.
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