Ambuja Cements: Big on capacity, small on profit margin
Summary
Ambuja Cements is on a growth trajectory with its capacity expansion but struggles with margin pressures. With plans to reduce costs and increase its green energy mix, the company aims to boost profitability.
Ambuja Cements Ltd’s rapid addition to capacity – which surpassed 100 million tonnes per annum (mtpa) after integrating Penna Cement, Sanghi Industries, and most recently Orient Cement – has secured it among the world’s major cement companies. But while scale is expanding rapidly, margins continue to trail, keeping investors focused on profitability.
The results announced earlier this week showed that Ambuja’s Ebitda (earnings before interest, tax, depreciation and amortisation) per tonne, a key profitability metric for the cement sector, dropped almost 30% to ₹789 in FY25, highlighting persistent pressure on margins. However, Ebitda per tonne in Q4 rose for the first time sequentially after three straight quarters of decline, coming in at ₹1,001, almost double the ₹537 in Q3.
That was accompanied by a 12.6% year-on-year rise in consolidated volumes to 18.7 million tonnes in the quarter, including 1.6 mt from newly integrated assets. The improvement in profitability was led by sequential gains in cement realisations (up 2.4%) and lower variable costs.
But not all is hunky dory.
“While the margin gap has narrowed versus that for industry leader UltraTech Cement, it still lags by 110 basis points (bps). Further margin recovery remains key for Ambuja to seek outperformance vis-à-vis UltraTech," ICICI Securities Ltd analysts said in a report on 30 April.
Also Read | UltraTech Cement set for higher volumes, tighter grip on costs
Ambuja’s push to lift margins hinges on its cost-saving plan. The company has targeted ₹500 per tonne in cost reductions by FY28 and has achieved ₹150-175 per tonne so far. Banking on these efficiency gains and improved pricing, Ambuja’s final goal is to lift the Ebitda per tonne to ₹1,500 by FY28.
Expansion plan
Green energy is a key part of the plan. Ambuja aims to commission 1,000 MW of renewable capacity by mid-2026, which is expected to lift its green power mix to 60% from 26% now. Additionally, logistics optimisation is under way, with the target of reducing the primary lead distance by 100 km by FY28 and boost dispatches via sea routes to trim transport costs. Primary lead distance refers to the average distance from a plant to the market and is a key factor of logistics costs.
The company's capital expenditure reflects its aggressive expansion roadmap. Ambuja has earmarked about ₹9,000 crore for FY26, with two-thirds allocated to new capacity and the rest to efficiency upgrades.
Also Read | Cement price hikes in April ease margin fears—at least for now
Expansion work is under way at multiple locations: the Bhatapara clinker unit (4 mtpa) and associated grinding units in Sankrail and Sindri are expected to be operational by Q1FY26, while units in Uttar Pradesh, Maharashtra and Bihar are scheduled for commissioning by FY26-end. If all goes as per plan, Ambuja will hit 118 mtpa by FY26, en route to its 140 mtpa goal by FY28.
Premium products offer an additional margin lever. Premium cement accounted for 29% of trade volumes in Q4, up from 27% in Q3. The company targets 35% by FY26. These products typically fetch ₹200-300 more per tonne than regular cement.
Importantly, how demand shapes up is key. Industry cement demand grew 6.5–7% in Q4 and 4-5% in FY25 overall, with the management guiding for about 8% growth in FY26.
As Motilal Oswal Financial Services notes, “Over the next few years, demand is projected to rise at a 7-7.5% CAGR, likely outpacing supply growth of about 6%."
Also Read | Five fastest growing cement stocks to watch out for in 2025
However, risks remain. The industry’s strong supply addition can keep a check on prices. ICICI Securities revised its FY26 Ebitda per tonne estimate downwards to ₹1,080 from ₹1,140, citing slower-than-expected capacity addition and weaker pricing dynamics. The broking firm pointed out that Ambuja’s earnings have historically been more volatile than those of its peers.
The valuation story hinges on whether Ambuja can close the margin gap with UltraTech.
As ICICI puts it: “Further uptick to bring margins at par or higher versus UltraTech (as demonstrated in at least four quarters under the new management) remains key to seek stock outperformance."
With the building blocks of capacity and a cost-cutting strategy in place, investors will watch if Ambuja can turn scale into sustainable profitability. Analysts value the stock at about 17-18 times EV (enterprise value)/Ebitda, based on FY27 estimates.
