CMP: Rs 116
Target Price: Rs 85
Morgan Stanley has maintained ‘underweight’ on Ambuja Cement (ACL) largely on concerns of a slowdown in revenues and increasing margin pressures.
“We reiterate our underweight rating on Ambuja and expect the company to continue to post disappointing numbers in the coming quarters as pricing would be under pressure and costs will escalate,” said the brokerage in a note to its clients.
The company has reported another quarter of disappointing numbers with revenues growing only by 16.5% year-on-year at Rs 1,700 crore. While the stock has underperformed, it continues to trade significantly above replacement cost.
“We continue to believe that the slowdown in margins over the next couple of quarters will worsen as the Y-o-Y pricing growth remains too small to cover the rising costs, before pricing growth itself turns negative in financial year 2009,” it adds