Shares of the third largest cement producer in the world, outside of China, slumped by nearly 1.4 percent to Rs. 10,670.4 on BSE, during the morning trading session of Wednesday.
With a market capitalisation of Rs. 3.11 lakh crores, the shares of UltraTech Cement Limited opened at Rs. 10,817.35.
Brokerage Target:
The global brokerage firm Morgan Stanley has maintained an “overweight” rating on UltraTech Cement Limited, the cement flagship company of the Aditya Birla Group, and assigned a target price of Rs. 13,620 per share, representing a potential upside of nearly 26 percent from the current trading price of Rs. 10,775.
Brokerage Outlook:
Discussions with industry players indicate that government projects that stalled during the central elections and monsoon season are not resuming as anticipated. Alongside Morgan Stanley’s expectations for an increase in demand following the festive season, this is expected to significantly boost cement demand growth.
In terms of pricing, the last few months have experienced several price increases, but it was only in September that the brokerage observed some of these increases being maintained. Morgan Stanley anticipates that the Indian cement industry may experience continued price increases in the coming months.
The brokerage observed that although UltraTech’s EBITDA fell short of estimates, the company is approaching the conclusion of its earnings downgrade cycle.
Given the anticipated rise in demand and prices, cement stocks are expected to outperform in the next few months, according to Morgan Stanley. Additionally, the firm’s cost-improvement initiatives are projected to support significant earnings growth over time.
This positive outlook is maintained despite UltraTech Cement experiencing a 36 percent decline in profit in Q2 FY25, alongside shrinking margins and a 2 percent drop in revenue.
Although earnings for FY25 may face challenges, the brokerage highlights that cement companies have minimal earnings risk for FY26 and FY27. It indicates that the earnings downgrade cycle within the sector is nearing its conclusion.
Morgan Stanley anticipates strong demand; however, it also expects only modest price increases. This is largely due to the increased focus on merger and acquisition deals the industry has seen since 2023. As a result, cement companies are likely to see margin growth primarily from improving their cost-efficiency and operations.
Management Guidance:
UltraTech Cement mentioned that its significant capacity expansion aims to leverage the considerable long-term growth potential of India’s cement industry. The company believes its growth path is closely linked to India’s overall economic expansion.
Additionally, it noted that by scaling up operations, it will be able to meet the increasing national demand for cement. With anticipated increases in government spending on infrastructure and growing demand from the urban housing sector, the company expects to achieve sustainable volume growth of 7-8 percent in the coming years.
During Q2 FY25, grey cement capacity expanded by 9.9 MTPA, taking the total grey cement capacity of the company to 150.7 MTPA in India.
As of FY24, the company’s grey cement capacity stood at 140.8 MTPA, with an aim to achieve a 157 MTPA capacity by FY25, 168.8 MTPA in FY26 and 183.5 MTPA by FY27. The company also plans to spread its presence across 70 locations across the country by FY27.
Over the next three years, UltraTech aims to invest a total of Rs. 32,400 crore, with a goal of reaching a capacity of 200 MTPA by 2028.
UltraTech plans to invest Rs. 9,500 crore in capex for FY25 alone. This is part of a larger strategy to increase its cement production capacity to 157 million tonnes per annum (MTPA) by FY25.
Financials:
UltraTech Cement recently reported its results for the September quarter of FY25, which did not meet market expectations.
The company reported a marginal decline in revenue from operations, experiencing a year-on-year fall of nearly 2.4 percent, from Rs. 16,012 crores in Q2 FY24 to Rs. 15,635 crores in Q2 FY25.
Similarly, its net profit decreased during the same period from Rs. 1,280 crores to Rs. 825 crores, representing a decline of nearly 35.5 percent YoY.
Company Operations:
UltraTech reported a capacity utilisation of 68 percent for Q2 FY25. Despite persistent rains across the country this season, domestic sales volume increased by 3 percent year-on-year on a consolidated basis.
Energy costs decreased by 14 percent year-on-year, while raw material costs rose by 1 percent due to higher expenses for flyash and slag.
Additionally, UltraTech successfully secured $500 million through a sustainability-linked loan with the involvement of six banks. This transaction represents the company’s second sustainability-linked financing, following its initial sustainability-linked bond issuance in 2021.
Stock Performance:
The stock has delivered positive returns of nearly 30 percent in one year, as well as around 13 percent returns in the last six months. So far in 2024, the shares of UltraTech Cement have given positive returns of about 3 percent.
About the Company:
UltraTech Cement Limited is engaged in the business of manufacturing and sale of Cement and Cement-related products. It is India’s largest manufacturer of grey cement and ready-mix concrete, and one of the top manufacturers of white cement.
Written by Shivani Singh
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