Nomura has reduced its target price on Ambuja Cements by 7% to Rs 500 while reiterating its Buy recommendation, despite the company's better-than-expected operating performance during the June quarter. The brokerage cited concerns over execution risks associated with capacity expansion, market share retention, and the pace of cost optimization.

The brokerage revised its cement volume estimates for FY27, FY28, and FY29 downward by 9%, 5%, and 7%, respectively. According to Nomura, Ambuja Cements' strategy of prioritizing higher-margin trade sales over lower-margin non-trade volumes could affect its overall market share in the coming years. It also noted that uncertainties surrounding the ramp-up of acquired assets and improvements in capacity utilization continue to pose execution challenges.

While the company's management reiterated its target of achieving cost savings of Rs 200-250 per tonne, Nomura believes the target is ambitious. The brokerage expects cost reductions of less than Rs 50-100 per tonne over FY27 and FY28, leading it to lower its EBITDA estimates by 6% for FY27, 10% for FY28, and 5% for FY29.

For the June quarter, Ambuja Cements reported EBITDA of Rs 15.9 billion, exceeding Nomura's estimate by 19% and Bloomberg consensus estimates by 4%. The stronger performance was primarily driven by disciplined cost management, including prudent raw material procurement and lower lead-distance expenses, which reduced operating costs per tonne by 3% sequentially and 5% below the brokerage's estimates.

Cement sales volumes stood at 17.1 million tonnes during the quarter, declining 7% year-on-year and remaining slightly below expectations due to plant shutdowns and lower non-trade volumes. The brokerage also observed that the company's realization growth lagged the broader industry, increasing only 1% quarter-on-quarter compared with an industry average of around 4%.

Improved cost efficiencies helped EBITDA per tonne rise by approximately Rs 200 sequentially to Rs 929, significantly exceeding Nomura's expectations. However, the brokerage expects profitability to moderate in the September quarter as seasonal demand weakness is likely to result in a 2% sequential decline in blended realizations, despite forecasting 6% year-on-year growth in cementitious volumes.

Management highlighted that the company currently holds around one month of clinker inventory and three months of coal inventory, which is expected to provide near-term cost support by keeping raw material, power, and fuel costs broadly stable. Even so, Nomura projects EBITDA per tonne to ease to around Rs 890 in the September quarter.

Overall, while Nomura remains positive on Ambuja Cements' long-term prospects, it believes concerns regarding market share, execution of expansion plans, and the pace of cost optimization justify a lower valuation target.