UltraTech Cement sees strong Q1 growth, but faces margin pressure ahead

UltraTech Cement reports 46% YoY operating profit growth in Q1FY26, but faces near-term margin pressures. The company maintains a strong growth outlook for volume and revenue in FY26

UltraTech Cement’s operating profit of first quarter of 2025-26 (Q1FY26) grew 46 per cent year-on-year (Y-oY) to ₹4,410 crore and operating profit per tonne increased 33 per cent Y-o-Y to ₹1,197. The margin rose 470 basis points Y-o-Y to 21 per cent. The adjusted net profit increased 44 per cent Y-o-Y to ₹2,250 crore. The company’s standalone (excluding India Cement and UAE operations) operating profit of ₹4,200 crore was up 42 per cent Y-o-Y but down 9 per cent quarter-on-quarter (Q-o-Q).

 

Demand was driven by pick-up in government-spending. Rural revival and urban housing demand are likely drivers in the short term. Guidance is for double-digit volume growth (like-for-like) in FY26. The integration of acquired assets (India Cement and Kesoram Cement) is going well.

 

UltraTech Cement’s  consolidated revenue was ₹21,280 crore, up 13 per cent Y-o-Y. Volume grew 10 per cent Y-o-Y to 36.8 million tonnes. But standalone volume growth (ex-India Cement) of 2 per cent was low. Blended realisations improved 3 per cent Y-o-Y and 3 per cent Q-o-Q. Operating expenditure per tonne was down 3 per cent Y-o-Y but up 2 per cent Q-o-Q. The building product segment revenue was ₹185 crore. 

 

Depreciation and interest expenses rose 21 per cent and 33 per cent Y-o-Y, respectively while other income grew 7 per cent Y-o-Y. Effective tax rate rose to 26.1 per cent vs 19.6 per cent Y-o-Y in Q1FY25 and 20.1 per cent Q-o-Q in Q4FY25.

 

Demand was steady. Government spending is expected to strengthen going forward. Fuel costs rose Q-o-Q in Q1FY26. But management expects fuel costs to decline and stay range-bound unless there’s geopolitical turmoil. Green energy in the total power mix stands at 39.5 per cent in Q1FY26, with Waste Heat Recovery Systems (WHRS) and renewable energy or RE capacity of 363 MW and 1,082 MW respectively. 

 

The capex guidance is at ₹10,000 crore in FY26, with ₹2,000 crore already spent. The company commissioned 3.5 million tonnes per annum or MTPA capacity in Q1FY26 and another 10 MTPA is in the pipeline. Consolidated net debt is ₹16,340 crore versus ₹5,480 crore in June 2024, and standalone net debt is at ₹13,710 crore vs ₹3,320 crore in June 2024. The average cost of borrowing was 7 per cent in Q1FY26 and is expected to fall.

 

In Kesoram, the target is to ramp up capacity utilisation supported by WHRS and process upgrades. In India Cements, there is a turnaround plan targeting an increase in operating profit from ₹400/tonne to over ₹1,000/tonne by FY28. This includes a capex plan, including 21MW of WHRS and 219MW of renewables, raising green power share to 86 per cent (currently 3 per cent). The plan will be funded through internal accruals and debt, with net debt expected to drop by the completion of capex. India Cement should be debt-free by FY28. UltraTech Cement is charging ₹10/bag marketing charge on sales of India Cement and all other benefits are passed through. Brand transition is in progress in both acquisitions. A decision on merger with India Cement will be taken after FY27, based on performance and stamp duty considerations.

 

The company maintains leadership of the sector, and integration of acquisitions looks successful. It has a strong balance sheet and high cash flow to fund expansions and eventually deleverage. Double-digit annual volume growth could lead to mid-teens revenue growth and 25 per cent operating profit growth for the next three fiscals. Net debt should decline by 75 per cent by FY28 assuming cash-flow generation stays normal.

 

Seasonal considerations will keep margins down in Q2FY26. In the medium to long term, green focus, lower freight costs due to network optimisation and higher alternative fuel usage should help with margins. Valuations, however, are rich.