Ambuja Cements Ltd Quarterly Results Q2FY27 stock analysis

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Sector Outlook: Positive

Revenue Stagnation and Margin Compression Weigh on Earnings; Cost Efficiencies

Ambuja Cements Ltd. reported revenue of Rs. 9,166 crores in Q2FY27, largely flat YoY with marginal 0.4% growth, but down 3.3% QoQ, indicating subdued revenue momentum. Gross profit increased 1.5% YoY to Rs. 7,938 crores, with gross margins expanding 94 bps to 86.6%, supported by a 6.1% YoY decline in total raw material costs. However, these gains were offset by higher operating expenses, particularly power and fuel costs, which increased 11.9% YoY to Rs. 2,552 crores, while other expenses rose 17.4% to Rs. 1,593 crores. Freight and forwarding expenses also increased 5.7% YoY to Rs. 2,180 crores, adding to the overall cost burden. Consequently, operating profit fell 27.8% YoY to Rs. 1,240 crores, and operating margins contracted 528 bps to 13.5%, highlighting the impact of rising operating costs despite improved gross margins. Depreciation rose 4.4% YoY to Rs. 877 crores, while other income fell sharply 77.4% to Rs. 58 crores, further weighing on the bottom line. As a result, net profit fell 89.9% YoY to Rs. 236 crores, reflecting pressure on both operating profitability and non-operating income. The quarter underscores the need for stronger cost discipline and improved operating leverage to translate revenue growth into sustainable earnings growth.

Valuation and Outlook

Ambuja Cements reported weak operating performance in Q2FY27, with revenue largely flat at Rs 9,166 crores, up 0.4% YoY, while EBITDA fell 27.8% YoY to Rs 1,240 crores. Operating margins contracted sharply by 528 bps YoY to 13.5%, primarily due to higher power and fuel costs, logistics expenses and other operating costs. Despite gross margins improving to 86.6%, elevated operating expenses continued to weigh on profitability, resulting in an 89.9% YoY decline in net profit to Rs. 236 crores. However, management remains focused on improving cost efficiency, targeting total cost of Rs. 4,250 per tonne in FY27 and Rs. 4,000 per tonne over the medium term, supported by renewable power, waste heat recovery systems, alternative fuels, and logistics optimisation. The company expects volumes to grow ahead of the industry in H2FY27, targeting high single-digit to potentially double-digit growth. Its ongoing expansion plans, targeting capacity of 149 MTPA by FY29 and 155 MTPA by FY30, along with the proposed merger of ACC and Orient Cement, are expected to strengthen its market position and unlock operating synergies. While elevated energy costs, geopolitical uncertainties, monsoon-related demand challenges, and substantial capex remain near-term concerns, improving cost efficiencies, capacity expansion, and merger synergies offer medium–to long-term growth opportunities.

Key concall Highlights

Capacity Expansion:

Ambuja Cements plans to expand its cement manufacturing capacity to 149 MTPA by FY29 and 155 MTPA by FY30, adding approximately 30 MTPA of cement and 10.3 MTPA of clinker capacity through 14 expansion projects.
The company will undertake the proposed expansion across the West, East and North regions, with capacity additions of 15.2 MTPA, 11.6 MTPA and 2.9 MTPA, respectively. The company is prioritizing brownfield projects in markets where it has strong brand equity and an established presence.
The total capital expenditure for the proposed 30 MTPA expansion is estimated at approximately Rs. 14,500 crores, translating into annual spending of around Rs. 7,000–7,500 crores over the next two years.
Management expects execution timelines of approximately 14 months for grinding units and

Pricing, Volumes and Market Strategy:

Management expects cement volume growth to outperform the industry in H2FY27, targeting high single-digit to potentially double-digit growth, supported by improving demand conditions and capacity utilization.
Cement prices remained at approximately Rs. 255 per bag during Q2FY27, despite the seasonally weak monsoon period. Management indicated that price increases of around Rs. 10 per bag were already realized in October, supporting improved realizations.
Management expects an additional benefit of approximately Rs. 150 per tonne from its value-focused trade strategy by June, which is likely to support profitability and improve realizations.
The company continues to strengthen its presence in the West, East, and North markets, leveraging its strong brand equity and premium cement positioning to drive better price realization.

Cost Optimization and Operational Efficiency:

Operating EBITDA margin stood at nearly 14% in Q2FY27, with EBITDA per tonne at approximately Rs. 770. Management remains focused on improving profitability through structural cost optimization, operational efficiencies and disciplined capital allocation.
Total cost stood at Rs. 4,410 per tonne during Q2FY27, which normalizes to approximately Rs. 4,182 per tonne after excluding the impact of geopolitical disruptions. The company remains on track to achieve its FY27 cost target of Rs. 4,250 per tonne.
Management reiterated its long-term cost-reduction target of Rs. 4,000 per tonne by FY28, supported by investments in green power, waste heat recovery systems (WHRS), alternative fuels, and logistics infrastructure.
The company has improved its fuel mix, with domestic coal accounting for over 50% of the overall mix, while imported fuel remains below 40%, including 10-12% petcoke and less than 28% imported coal. This provides a relative advantage in managing fuel costs amid global energy uncertainties.
Ambuja has secured long-term agreements for approximately 20 million tonnes of fly ash from group thermal power plants at competitive landed costs. Higher utilization of its bulk cement and fly ash transportation infrastructure (BCFC) is expected to improve raw material and logistics efficiency further.
Logistics efficiency remains a key focus area, with the company reducing its primary lead distance from 265 km to 254 km. It also plans to deploy 400 electric vehicles by March 2027 and leverage technology to improve transportation efficiency and reduce backloading costs.

CapEx Plans:

The company maintained its FY27 capital expenditure guidance at approximately Rs. 6,500–7,000 crores, with around Rs. 3,500 crores already incurred during H1FY27 and the remaining expenditure expected in H2FY27.
Management expects annual capital expenditure of approximately Rs. 7,000–7,500 crores in each of FY28 and FY29, primarily towards capacity expansion and associated infrastructure development.
The proposed capacity expansion programme is expected to be largely self-sustainable, supported by operational cash flows and investments focused on high-return markets.
Management highlighted that the company’s exit capacity utilization is projected to reach approximately 75% by the end of FY27, providing a foundation for further volume growth and operating leverage.

Other key concall highlights:

The proposed merger of ACC and Orient Cement with Ambuja Cements is progressing toward final approval from the National Company Law Tribunal (NCLT). The merger is expected to complete within FY27, subject to regulatory approvals. The merger is expected to simplify the corporate structure, unlock operational synergies, and be accretive to earnings per share.
The acquired assets of Penna and Sanghi are currently operating at about 50% capacity utilization, offering significant scope for improvement through operational ramp-up and better use of existing assets.
The company is increasing the share of blended cement from 77% to 82%, targeting an 80:20 blended cement-to-OPC ratio. This initiative is expected to improve resource efficiency, optimize production costs and strengthen its green cement portfolio.