UltraTech Cement nears record high on healthy demand outlook

Shares of UltraTech Cement hit a 52-week high of Rs 4,800, up 2 per cent on the BSE in intra-day trade on Wednesday on the expectation of a healthy demand outlook. The stock was trading close to its record high level of Rs 4,904, touched on May 27, 2019.

In the past two months, UltraTech Cement has outperformed the market by surging 23 per cent, as compared to an 11 per cent gain in the S&P BSE Sensex. At 11:55 am, UltraTech Cement was trading 1 per cent higher at Rs 4,758 on the BSE, as compared to a 0.43 per cent decline in the S&P BSE Sensex.

For the July-September quarter (Q2FY21), UltraTech Cement had reported a 113 per cent year-on-year (YoY) jump in net profit at Rs 1,234 crore on the back of operational efficiencies and its ability to serve all Indian markets. The company reported robust operating margins at 27 per cent driven by both revenue growth and tight cost management. For the second quarter in a row, the company has reduced net debt substantially.

The management in conference call mentioned that cement demand rebounded sharply in September 2020 with further acceleration in October 2020 led by a pick-up in non-trade demand and supported by ‘unprecedented’ rural demand. The company expects strong demand to continue in the rural segment while urban demand is likely to recover in the second half (October-March) of the current fiscal.

“The urban demand is slowly and surprisingly coming back. Tier-1 towns are showing signs of opening up of the real estate market, though it will take some time to show some real growth. The housing demand is showing green shoots,” analysts at IDBI Capital said in Q2FY21 result review.

“With better profitability, UltraTech Cement is likely to become debt-free by FY23E and improve return ratios by 300-500bps over FY20-FY23E. Factoring-in Q2FY21 beat, we increase our FY21E-FY22E EBITDA by 5-13 per cent and raise our target price to Rs 5,725/share (earlier: Rs 5,100) based on 13x Sep’22E EV/E on half-yearly rollover,” analysts at ICICI Securities said while maintaining a ‘BUY’ rating on the stock.

“In line with our view, UltraTech Cement continues to deliver margin expansion, asset sweating, and debt reduction. We increase our consolidated EBITDA estimates for FY21/22/23E by 11/7/4 per cent to factor in healthy demand and cost outlook. We maintain BUY with a higher target price of Rs 5,670/share (15x Sep’22E consolidated EBITDA),” HDFC Securities said in a stock update.