UltraTech well placed to benefit from demand growth despite cost pressures

UltraTech beat Street estimates in Q1FY27, with strong volume growth and stable margins, while management remains confident of sustaining double-digit growth in FY27

UltraTech Cement (UltraTech) beat consensus with its Q1FY27 results and guidance. The company posted domestic grey cement volume growth at 13 per cent year-on-year (Y-o-Y).

 

The blended earnings before interest, taxes, depreciation and amortisation (Ebitda) per tonne was ₹1,214 (up 1.4 per cent Y-o-Y) and realisation rose 3.7 per cent quarter-on-quarter (Q-o-Q) and has been steady in Q2FY27.

 

The management targets double-digit volume growth in FY27 and expects cost to rise ₹130-140/tonne Q-o-Q in Q2FY27. This implies gaining marketshare. The monsoon quarter is usually soft so there can be margin pressure.

 

Consolidated cement volumes expanded 12 per cent Y-o-Y while branded UltraTech volumes surged 21 per cent in Q1FY27 after gains of 8.6 per cent and 15.4 per cent, respectively, in FY26.

 

Power & fuel costs per tonne decreased 1 per cent Y-o-Y while freight expenses per tonne were flat.

 

Ultratech has a grey cement capacity of 200 million tonnes and targets raising this to 207 million tonnes by end-FY27 and to 237 million tonnes by end-FY28.

 

Fuel costs rose ₹40 per tonne Q-o-Q and packaging costs went up ₹50-60 per tonne Q-o-Q.

 

The brand integration of India Cements and Kesoram to UltraTech has been completed.

 

The management expects costs to rise sequentially in Q2FY27.

 

The trade mix was flat at 66 per cent Q-o-Q in Q1FY27. The clinker conversion ratio was 1.5 times (1.48 times in Q4FY26). Pet coke constituted 38 per cent of fuel mix, down from 41 per cent in Q4FY26.

 

According to the management, industry volumes increased 7-8 per cent Y-o-Y in Q1FY27.

 

Capacity utilisation was 81 per cent (89 per cent in Q4FY26).

 

Net debt/Ebitda was 0.94 times in FY26-end and at 0.87 times in end-Q1FY27. The management expects the ratio to stay below 1 in FY27.

 

Lead distance reduced 9 kilometres Y-o-Y to 360 kilometres.

 

The road share for cement transport was 75 per cent, rail share 23 per cent and sea share 2 per cent.

 

The share of green power used to manufacture cement was 45.6 per cent (up 2,300 basis points or bps Y-o-Y).

 

Green power mix is targeted to hit 85 per cent by FY30. Ongoing capex will continue to be funded via internal accruals while dividends may also remain stable.

 

The management is confident about demand, assuming continued government spending on infrastructure and healthy housing demand.

 

Industry demand may grow 7-8 per cent in terms of volumes while the company targets double-digit volume growth in FY27.

 

Cement prices improved through April-May’26, especially in East and South India. The management expects prices to remain stable in Q2FY27. Some margin pressure is likely if full cost pass-through is not possible.

 

UltraTech commissioned 8.7 million tonnes of capacity in Q1FY27 out of 12 million tonnes commissioned across industry, taking domestic grey cement capacity to 200.1 million tonnes and total capacity to 205.5 million tonnes.

 

The company guided for capex of ₹17,000 crore for ongoing projects over the next two years to take grey capacity to 240 million tonnes by end-FY28. White cement capacity is 1.5 million tonnes per annum (mtpa).

 

India Cements reported domestic sales volume of 2.58 million tonnes (up 18.5 per cent Y-o-Y) and 21 per cent revenue growth. The Ebitda/tonne was ₹604 in Q1FY27, up from ₹376 in Q1FY26.

 

India Cement has a capex plan of ₹2,000 crore over next two years with capacity expansions of 2.8 mtpa.

 

The ready mix concrete (RMC) business surged 22.4 per cent Y-o-Y in Q1FY27.

 

The company has waste heat recovery systems (WHRS) capacity of 434 Mw, up from 414 Mw in Q4FY26 and renewable capacity of 1.46 Gw, up from 1.39 Gw in Q4FY26 with a target of 2.5-3 Gw.

 

In the cables and wires business, out of ₹1,800 crore of approved capex, about ₹880 crore has been committed. The new business is on track to be launched in Q3FY27.

 

The industry is intensely competitive with every major player having invested in capacity in anticipation of a long cycle of rising demand.

 

Given surplus capacities across the board, there are chances of a price war.

 

Geopolitical tensions have led to a rise in coke costs.

 

Demand has risen but not kept pace with capacity additions so far.

 

UltraTech is a market leader. (Grasim holds a 57 per cent stake.) It has been impressive — having steadily added capacity via internal accruals, while keeping debt low.

 

Operating leverage is good and may get better as volumes scale further.

 

It has managed market share gains without fighting a price war.

 

The India Cement acquisition seems to be working out, with improvement in operations and realisations.

 

Assuming raw material costs don’t escalate sharply and there isn't a serious drop in demand that affects prices, UltraTech is well placed.