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Journey of growth, scale and leadership

* UltraTech Cement (UTCEM) is maintaining its leadership position in the Indian cement industry, with its long-term expansion strategy in key markets. UTCEM’s domestic grey cement capacity CAGR stood at 10% over FY14-24, leading to a significant gain in market share (up 10pp over FY14- 24) to ~26% by FY24. UTCEM expanded its capacity with a mix of organic and inorganic routes. In the last decade, the company added 104.2mtpa of capacity (including acquisition of Kesoram Industries or KSI, pending for certain approvals), of which 60.5mtpa (~58%) was through acquisitions.

* Over the year, the company balanced out its pan-India presence with allround capacity expansions. Earlier (FY19), UTCEM had higher concentration in the West, Central and North regions. However, the company’s consistent organic capacity expansions (under Phase I, II and III) and recent strategic acquisitions are balancing its overall market presence.

* The company is targeting cost savings of INR200-300/t over the next three years. Cost savings would be achieved through an increase in green power and alternative fuel share, a reduction in clinker factor, savings in logistics costs through utilizing larger scale of operation, and operating leverage with higher volume.

* We estimate a CAGR of 18%/20% in consolidated EBITDA/adjusted PAT over FY24-27. We have included KSI in our earnings estimates from FY26 (as of now acquisition is pending for certain approvals and expected to complete in 2HFY25). UTCEM’s healthy operating performance with a large scale of operation and its leadership position in the industry warrant higher multiples. The stock currently trades at 18.5x FY26E EV/EBITDA. We value the stock at 20x Jun’26E EV/EBITDA to arrive at a TP of INR13,300. Reiterate BUY.

All-round growth; maintaining leadership position

* UTCEM’s domestic grey cement capacity/volume CAGRs at 10%/11% over FY14-24 exceeded that of the industry (at 5% each). As a result, UTCEM’s market share has increased significantly, to ~26% in FY24 from ~16% in FY14. It expanded the capacity with a mix of organic and inorganic routes.

* UTCEM is expanding domestic grey cement capacity (under Phase II & III) to reach 183.5mtpa organically and 194.3mtpa, including KSI acquisition (pending for certain approvals), by FY27-end vs. 147.3mtpa currently. Also, the company has enough organic opportunities to reach 200mtpa of grey cement capacity in the medium term.

* The board has approved a non-controlling financial Investment to purchase a ~23% stake in ICEM (acquired 19.44% stake at INR267/share and balance 3.4% stake is acquiring at INR285/share). The stake acquisition is from a large investor and the management did not comment anything on any potential deal with ICEM’s promoters. At these prices, ICEM EV/t (one-year forward) works out to be USD90/t.

Cost savings to help improve profitability

* The company is targeting cost savings of INR200-300/t over the next three years. It has given a detailed cost saving guidance of – i) INR80/t through an increase in the green power share; ii) INR30/t by higher alternative fuel share; iii) INR60/t by a reduction in clinker factor and higher blended cement share, iv) INR75/t by savings in logistics costs through utilizing larger scale of operation and logistic optimization; and v) INR40/t from other operational efficiency, including positive operating leverage with higher volume.

* UTCEM aims to increase its WHRS capacity to 465MW by FY27E vs. 278MW currently. Apart from that, it is participating in a hybrid solar-wind project, which will help to increase other RE capacity to 1.5GW by FY27E (from 612MW currently). After the completion of these projects, green energy will fulfill +60% of total power requirements (25% from WHRS and 35% from other RE) on increased capacity. It has a long-term target (by FY30E) of increasing its share of green power to ~85%.

* We estimate UTCEM’s capacity utilization to be at the optimum level of ~82-86% and consol. volume CAGR at ~12% over FY24-27. We estimate its EBITDA/t at INR1,150/INR1,190/INR1,275 in FY25/FY26/FY27 vs. INR1,090 in FY24. We have factored in the acquisition of KSI cement asset in our estimates from FY26.

View and valuation

* UTCEM’s consolidated net debt increased to INR217b after a slew of acquisitions in FY19-20. However, with successful integrations and a rapid scale-up in capacity utilization in acquired assets, UTCEM not only reduced its net debt (INR27.8b as of Mar’24), but also expanded its domestic grey cement capacity to 140.8mtpa in FY24 from 109mtpa in FY19 while maintaining its leadership position in the industry. We believe the low-cost expansion (all Phase - I, II and III expansions entail capex of ~USD70/t) and faster execution will improve return ratios. We estimate the company’s ROE to increase to 14% by FY26-27 vs. 12% in FY24.

* In our previous company update, we highlighted the company’s valuation premium is supported by growth plans. We continue to believe in the company’s ability to gain market share, driven by its extensive operations, nationwide presence, and robust brand equity.

* UTCEM’s healthy operating performance with a large scale of operation and its leadership position in the industry warrant higher multiples. The stock currently trades at 18.5x FY26E EV/EBITDA. We value the stock at 20x Jun’26E EV/EBITDA to arrive at a TP of INR13,300. Reiterate BUY.

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