Synopsis:
Ambuja Cements is in focus as HSBC has increased its target price by a staggering 43 percent from its earlier stated price. The global giant cited increased consolidation amongst India’s large cement players and more.
The shares of this leading cement manufacturer are in focus after HSBC has given its upside target to a major cement player. In this article, we will dive more into the details.
With a market capitalization of Rs 1,41,605 crore, the shares of Ambuja Cements are currently trading at Rs 575 per share, representing a decline of 11 percent from its 52-week high of Rs 643.45 per share. Over the past five years, the stock has delivered a robust return of 161 percent against the NIFTY 50 return of 120 percent.
Analyst Comments
Leading brokerage, Hongkong and Shanghai Banking Corporation (HSBC) has increased its price target by a staggering 43 percent to Rs 700 per share from Rs 490 per share earlier. This latest uptick still signals a potential upside of 22 percent from its current market price.
HSBC cited that the merger in the cement sector has deepened drastically, where the four leading players now hold 57 percent of the total market share. Such a higher concentration gives more price-setting power and better competitive advantage to big firms such as Ambuja.
HSBC, on its part, pointed out the fact that small cement companies are facing a very difficult situation as they have high debt levels (leverage), which in turn negatively affects their expansion capacity. Thus, the scenario creates a positive background for a financially stronger player like Ambuja to grab more growth opportunities.
Moreover, HSBC thinks that FY26 will be the time when the most significant capacity increase in the present cycle will be achieved. After that, with the expected relaxation of supply pressures, the leading companies will likely see their margins and profits improving, thereby making Ambuja a company in a good position for sustainable value creation.
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Other Highlights
As per the Cement Manufacturing Association, India has a total installed cement capacity of approximately 700 Metric Tonnes (MT). Ultratech has 183.4 mtpa, Adani Cement (ACC, Ambuja, Penna) has approximately 100 MTPA, Shree Cement with 62.8 million tons, and Dalmia Bharat with 49.5 mnt.
UltraTech Cement, with a capacity of 183.4 MTPA, holds the largest market share at about 26.2 percent. Adani Group, through ACC, Ambuja, Orient, and Penna, commands roughly 14.3 percent with 100 MTPA. Shree Cement follows with 9 percent (62.8 MTPA), while Dalmia Bharat holds around 7.1 percent (49.5 MTPA).
In conclusion, HSBC’s 43% target price increase for Ambuja Cements indicates that the consolidation has been going up significantly in the sector, there has been some financial distress among the smaller players, and capacity additions will reach the peak in FY26.
However, we have to see if these three things combined give Ambuja the power to set prices and make its growth visible, which could be a good position to create value for the long term.
Written by Satyajeet Mukherjee
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