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Leadership and expansion, a key to growth

Largest cement manufacturer: UltraTech Cement is the cement flagship company of the Aditya Birla Group. It is the largest manufacturer of grey cement and ready mix concrete (RMC) and one of the largest manufacturers of white cement in India. It is the third largest cement producer in the world, excluding China. It has a total capacity of 120 MTPA of grey cement and 22 integrated manufacturing units, 27 grinding units, one clinkerisation unit and 8 bulk packaging terminals.

Strong demand opportunity in Cement sector: The demand for cement sector is expected to grow by a CAGR of 8-9% from 345-350 MT to 500-550 MT over FY22-27. We believe the growth will be driven by government spending on infrastructure development as in the Union Budget 2022-23, the government has provided higher allocation for infrastructure, affordable housing and road projects. Besides, pickup in rural and urban housing as well as growth in industrial and commercialization will further aid demand for the cement sector.

Capacity expansion plan to drive growth: UltraTech is well placed across India and in the next 3 years it has plans to expand its capacity which will be a mix of brownfield and Greenfield projects. The company’s capacity will increase to 160 MTPA by FY25 from 120 MTPA in FY22. This will aid in strengthening its position as well as capitalize on the opportunity arising from industries like housing, roads and infrastructure.

Plans to gain share in the east: UltraTech is a market leader in most of the regions in India such as west, north, central and south. It holds a market share of ~25% in terms of grey cement capacity in India. Going ahead, with an organic expansion plan of ~40-42 MTPA capacity pan India, it would strengthen its market position across regions as well as gain share especially in the east. .

Consistently reducing debt: In the last 3 years, UltraTech focused on re-paying debt as its plan was to further strengthen the Balance sheet. Thus, its Debt/Equity and Net Debt/Equity reduce to 0.2x & 0.1x in FY22 from 0.7x & 0.6x in FY19.

Valuation: On the financial front, we expect its revenue/EBITDA/PAT to grow at a 16.6%/20.1%/27.7% CAGR over FY22-25E, which would be driven by improved realization, utilization & addition of capacity. Besides, product mix, decline in fuel and other raw material costs would aid margin growth. From an investment perspective we are positive on the stock and have initiated a Buy with a target price of Rs 7,438.

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