UltraTech Cement up 2% as co eyes 7-8% growth in future; brokerages vary

UltraTech Cement's consolidated profit dropped 36 per cent year-on-year (Y-o-Y) to Rs 825 crore in the September quarter of FY25, from Rs 1,280 crore in the September quarter of FY24.

India’s largest cement manufacturer UltraTech Cement’s share price rose up to 1.88 per cent to hit an intraday high of Rs 11,074.60 per share. The share gained 2.96 per cent from the day’s low of Rs 10,755.30.

The uptick in the UltraTech Cement share price came after the cement player said that it is eyeing 7-8 per cent growth in the future years. 

UltraTech Cement said, “UltraTech’s ambitious capacity expansion capitalises on the substantial long term growth potential of India’s cement sector. Its growth trajectory aligns closely with India’s broader growth story. By increasing its scale, the Company will meet the rising demand for cement nationwide. Increase in Government spending on the Infrastructure sector and rising demand from the urban housing sector is expected to generate a sustainable volume growth of 7-8 per cent in future years.”

 

Results miss estimates 

However, UltraTech Cement's recently announced results for the September quarter of FY25 fell short of street estimates. 

The company’s consolidated profit dropped 36 per cent year-on-year (Y-o-Y) to Rs 825 crore in the September quarter of FY25, from Rs 1,280 crore in the September quarter of FY24. Revenue also declined, slipping 2 per cent annually to Rs 15,635 crore in Q2FY25, from Rs 16,012 crore in Q2FY24.

At the operating front, earnings before interest, tax, depreciation and amortisation (Ebitda) plunged 21 per cent Y-o-Y to Rs 2,019 crore, as against Rs 2,550.9 crore. Consequently, Ebitda margin squeezed 300 basis points Y-o-Y to 12.9 per cent in Q2FY25, from 15.9 per cent in Q2FY24. 

Operations

UltraTech Cement achieved a capacity utilisation of 68 per cent during the quarter. Domestic sales volume grew 3 per cent Y-o-Y on a consolidated basis, despite heavy rains across the country. 

Energy costs decreased 14 per cent annually, while raw material costs rose 1 per cent due to increased costs of fly ash and slag. 

The company has also successfully raised$500 million through a sustainability-linked loan with participation from six banks, marking its second sustainability-linked financing after the inaugural bond issuance in 2021. 

Brokerages vary

Brokerages have given mixed reactions on UltraTech Cement's performance. Analysts at InCred Equities anticipate a strong rebound in the second half of the fiscal year, driven by demand recovery after October 2024, alongside improvements in the pricing environment since August 2024. They have adjusted their Ebitda estimates down by 7-12 per cent for FY25-27, maintaining an ‘Add’ rating with a lower target price of Rs 12,190.

Those at Motilal Oswal pointed out that UltraTech Cement faced margin pressure in the first half of FY25 due to a slowdown in demand and pricing challenges. Nevertheless, the company is actively implementing a cost-efficiency program aimed at achieving sustainable cost reductions, targeting savings of Rs 300 per tonne over the next three years. 

Their cost-saving initiatives include increasing the clinker-to-cement (C:C) ratio, utilising green power and alternative fuels, optimising logistics costs, and enhancing overall plant efficiency. Thus, Motilal Oswal analysts project a CAGR of 16 per cent and 18 per cent in consolidated Ebitda and adjusted PAT, respectively, over FY24-FY27. With robust capacity expansion plans, including inorganic growth, they value the stock at 20 times the estimated September 2026 EV/Ebitda, resulting in a target price of Rs 13,000, down from Rs 13,600, while reiterating a 'Buy' rating.

Meanwhile, Nuvama analysts noted that UltraTech Cement reported approximately 4 per cent annual consolidated volume growth in Q2FY25. However, weak realisations, which declined by about 2 per cent Q-o-Q and 8 per cent Y-o-Y, led to Ebitda missing estimates by approximately 15 per cent. The Ebitda per tonne at Rs 725 is the lowest recorded in the past seven years. 

The management, however, expects to achieve operating cost savings of Rs 250-300 per ton over the next three years. They anticipate that the company’s capacity will reach 183.5 million tons by FY27E, excluding the 10.75 MTPA and 14.45 MTPA from Kesoram and India Cements, respectively, up from the current ~151 million tonnes. 

Considering the subdued demand growth and a weak pricing environment, Nuvama analysts have revised their FY25E, FY26E, and FY27E Ebitda estimates downward by 9 per cent, 5 per cent, and 3 per cent, respectively. They maintain a ‘Hold’ rating with a revised target price of Rs 11,238, down from Rs 11,773, based on a valuation of 18 times the estimated Q2FY27E EV/Ebitda.

According to reports, international brokerage Morgan Stanley has maintained an 'Overweight' rating, setting a target price of Rs 13,620. In contrast, Macquarie and CLSA have adopted a 'Neutral' stance, with target prices of Rs 11,106 and Rs 11,500, respectively. 

Nomura remained positive, maintaining a 'Buy' rating and a target price of Rs 12,350. Bernstein has rated the stock as 'Market Perform', with a target price of Rs 10,508. Bank of America (BoFA) continued to rate it as 'Buy' but has cut its target price to Rs 12,300, while Goldman Sachs also maintained a 'Buy' rating, reducing its target price to Rs 11,720.