UltraTech Cement rallies 3% in range-bound market on strong outlook

The management believe that new infrastructure project orders will start gaining momentum, although it has been a subdued start from Q1 and during the reported quarter.

Shares of UltraTech Cement rallied 3 per cent to Rs 11,086.80 on the BSE in Thursday’s intra-day trade in an otherwise subdued market on strong outlook. At 02:28; the stock was the top gainer among the BSE Sensex and Nifty 50. In comparison, the benchmark indices were trading in red. 

In the past six months, UltraTech has outperformed the market by surging 15 per cent, as against an 8 per cent rise in the benchmark index. The stock had hit a record high of Rs 12,138.25 on September 27, 2024.

 

In July to September quarter (Q2FY25), UltraTech reported muted earnings as pre-election slowdown followed by a slowdown in April, June, with elections and then monsoon, which have been intense in most parts of the country and also the longer duration of rains this season. Some parts of the country have been witnessing rains as of now as well. 

However, analysts believe recovery is on the cards as both demand and pricing are expected to improve in the second half of the financial year 2024-25 i.e. October to March 2025 (H2FY25).

 

Good monsoon is not good for the short term but results in a good season for rural markets in the long run with improved cash flows, thus the management envisages and expects good rural demand in the coming seasons.

 

The company’s management in the Q2 earnings conference call said Urban Housing has been doing well so far as has been visible from the growing number of registered projects across the country. The management believes that new infrastructure project orders will start gaining momentum, although it has been a subdued start from Q1 and during the reported quarter, the management believes that things have started moving and orders have started to pick up.

 

UltraTech is strongly placed to benefit from demand pick-up and continuous focus on cost saving initiatives. With healthy volume growth and significant improvement in EBITDA/ton over FY25-27E, analysts at ICICI Securities expect revenue to grow 10 per cent compound annual growth rate (CAGR) over FY24-27E while earnings before interest, taxes, depreciation, and amortisation (EBITDA) & profit after tax (PAT) are expected to grow at 19 per cent & 23 per cent CAGR respectively over the same period. The brokerage firm recommends BUY on UltraTech with a target price of Rs 13,500 (based on 20x EV/EBITDA on average of FY26E & FY27E).

 

Analysts at Centrum Broking believe Ultratech will continue to deliver industry leading performance with superior volume growth and continuous improvement in efficiency. The brokerage firm is building in 11 per cent/18 per cent revenue/EBITDA CAGR for the company over FY24-27E.  Analysts believe Ultratech will achieve significant scale and reach by FY27 which will be unmatched by peers giving the company a significant competitive advantage. “We value the stock based on17x Sep26 EV/EBITDA to arrive at target price of Rs 12,000,” the brokerage firm said.

 

UltraTech is on track to achieve 200mt grey cement capacity (vs 146mt currently) by FY27E (~11% CAGR) at a capex of less than USD75/t. This will help the company to achieve industry-leading volume growth, despite its large scale and the lower capex/t will boost return ratios. Besides, UltraTech’s Management is targeting sustainable cost reduction of ~Rs 300/t by FY27E to de-risk its business, said analysts at Emkay Global Financial Services.

 

Given its strong growth/capex plans, pan-India presence, and robust balance sheet, analysts increased target EV/E multiple to 20x (vs earlier 18x) and revised Jun25E target price to Rs 12,800/share after the quarterly roll over.