UBS upgrades UltraTech, Ambuja, Dalmia to 'buy' on earnings upcycle in FY26

All key cement demand drivers are in place and the sector should drive robust sector volume growth of 7-8 per cent CAGR over the medium term, UBS said

UBS Global Research upgraded multiple Indian cement stocks to ‘buy’, citing the sector’s risk factors as largely priced in and expecting an earnings upcycle next financial year.

 

The brokerage upgraded UltraTech Cement (target price: ₹13,000), Dalmia Bharat (target price: ₹2,100), and Ambuja Cement (target price: ₹620) to a ‘buy’ rating while maintaining its ‘buy’ call on ACC (target price: ₹2,250).

 

Analysts at the research firm noted that they had held a negative view of the sector since July 2023, given the demand slowdown and rising price competition after Adani group’s entry. However, these risks have played out, and an earnings upcycle is expected to emerge in 2025-26 (FY26), they said in a note.

 

 

Shares of cement companies rose following the rating upgrade from UBS. UltraTech climbed 3.71 per cent to ₹11,461 per share but trimmed gains to close 3.35 per cent higher on Tuesday. Ambuja and ACC advanced 2.75 per cent and 1.79 per cent, respectively. Dalmia’s stock rose as much as 2.42 per cent during the session.

 

UBS expects a “strong” earnings before interest, tax, depreciation, and amortisation compound annual growth rate (CAGR) of 18-43 per cent over 2024-25 through 2026-27 for the covered companies.

 

This is backed by a demand revival driven by a housing upcycle and a resurgence in government capital expenditure. Improving margins, bottoming-out prices, and sector consolidation led by the top two players, UltraTech and Ambuja, are also key catalysts for UBS’ rating upgrade.

 

“Our fears over oversupply due to Ambuja’s aggressive organic expansion have receded too, as Ambuja relied heavily on mergers and acquisitions (M&As), aiding sector consolidation.” 

 

Shifting to renewable energy, waste heat recovery systems, a decline in freight costs driven by rising rail penetration, M&A reducing lead time, and more efficient logistics management are also structural levers for lower costs, UBS said.

 

The brokerage estimates that the top two players’ share of industry capacity will rise from 33 per cent in 2023-24 to 44 per cent in 2029-30, while that of the top four players will increase from 48 per cent to 61 per cent.

 

“Moreover, we foresee further scope for M&A despite five large acquisitions involving a total capacity of 50 million tonnes per annum or more in the past two years.”

 

Ambuja remains UBS’ top pick, given its higher growth and lower valuation. The UltraTech upgrade came on the back of its strong execution in tough times and industry-leading growth and margins. Supportive valuation and industry tailwinds back the ‘buy’ ratings for Dalmia and ACC, UBS said.

 

All key cement demand drivers are in place, and the sector should achieve robust volume growth of 7-8 per cent CAGR over the medium term, UBS said. Meanwhile, consolidation in the sector will continue, driven by strong balance sheets, the pursuit of market share, and a still-fragmented industry. UBS expects margins and return ratios to expand beyond what appears to be priced in for the medium to long term, leaving room for further rerating.