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Buy UltraTech Cement Ltd  CMP: Rs 7250 | Target: Rs 8076 (11%)| SL: Rs 6815

UltraTech Cement Ltd. is the largest manufacturer of grey cement, Ready Mix Concrete (RMC) and white cement in India. It is also one of the leading cement producers globally. The company’s operations span across India, UAE, Bahrain, Bangladesh and Sri Lanka. The company is also India's largest exporter of cement reaching out to meet the demand in countries around the Indian Ocean and the Middle East. In the white cement segment, the company goes to market under the brand name of Birla White.

Investment Rationale

* Capacity Expansion Plan to Hold Industry Leading Position: Ultratech Cement is industry leader in terms of cement manufacturing capacity. Company recently announced a Major Capex plans of Rs 12,866 Cr to increase it capacity by 22.6 MMTPA through brownfield & greenfield projects. With this, it would enable set-up of integrated or grinding units as well as bulk terminals across the country. Commercial production from these units expected to go on stream in a phased manner by FY25. apex expansion plan to avail higher sales opportunity in growing infrastructure sector.

* Play on Structural growth in India’s Infrastructure Space: Cement is a proxy play on Infrastructure sector, Union budget allocation to infrastructure stood at Rs 5 trn (34% up from FY22) and is expected to raise further towards Rs 7 trn in Upcoming budget. Central govt’s push on infrastructure though various policies are key demand drivers along with real estate segment. Ultratech cement with pricing power and capacity to serve demand to benefit from the tailwinds.

* Moderation in Key inputs to Aid in Margin Gains: Ultratech cement reported Operating margins of 13% in Q2FY23 on account elevated Raw material & power and fuel cost. Prices of Power & Fuels along with key inputs have felled is Q3FY23 and Ultratech cement is expected to reclaim margins at previous historical levels in staggered manner.

* Outlook and Valuations: We estimate a 10% CAGR in Topline over FY22-25E, which implies a forward EV/EBITDA (x) of 16.3 for FY 25E EBITDA. We value it with a EV/EBITDA of 18x to FY25E which results per share value of Rs 8076. We recommend BUY on ULTRACEMCO at CMP of Rs. 7250 with Target price of Rs. 8076 (11%).

Observation

* The weekly chart of ULTRACEMCO reveals that since June 2022, the stock has consistently formed successively higher peaks and troughs, indicating a positive undertone in prices.

* On November 28th, 2022, ULTRACEMCO stock broke out of an inverse head and shoulder pattern, a bullish technical indicator, which suggests that the stock is likely to continue to rise.

* The price of ULTRACEMCO stock has rebounded after hitting the 18-week exponential moving average (EMA), which has previously served as a support level for the stock and is in line with the neckline of the inverse head and shoulder pattern.

* The stock's performance, as measured by its ratio chart in comparison to the benchmark NIFTY index, has surpassed previous levels, indicating that the stock is performing better than the overall market.

* The weekly relative strength index (RSI) has indicated a shift in range, reflecting increasing upward momentum.

TECHNICAL VIEW

Inference & Expectations

* The stock is in clear uptrend with rising momentum.

* Going ahead we expect the prices to go higher till 7915 level.

* The stoploss must be 6815 on the closing basis.

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