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Cementing its vision for 200mt capacity target

The UltraTech board has approved Phase-III of Company’s capex plan for setting up ~22mt (14% of its capacity post completion of ongoing projects) cement capacity at a capex of Rs130bn (~USD71/ton), to be funded through internal accruals. Along with the ongoing expansion, Company’s overall domestic grey cement capacity would gradually enhance to 182mt from FY26 (existing 132mt). Besides, the company is firmly on course to attain capacity of 200mt before FY30. This will help it to retain its leadership position. Further, such new organic capacities being added at lower capital costs aid in boosting return rations. UltraTech remains our sector top-pick, given its strong growth/capex plans, pan-India presence, and robust balance sheet. We maintain BUY on the stock, with Sep-24E TP of Rs9,550/share (16x EV/E).

Targeting domestic grey cement capacity of 182mt, FY26 onwards

UltraTech’s current domestic grey cement capacity stands at 132.5mt. In its ongoing phase-II expansion plan, it will add 24.4mt capacity (in addition to the 4mt debottlenecking), thus increasing its capacity to 159.7mt by Jun-25. In phase-III of expansion (21.9mt, at a capex of Rs130bn), it targets commercial production to go onstream in a phased manner from FY26, thereby enhancing its total grey cement capacity to 182mt.This will be achieved by setting up 4 greenfield and brownfield plants each, along with 4 greenfield bulk terminals. Further, the capex includes investments in setting up an additional 39MW WHRS at Rs4.5bn and another Rs1.8bn towards AFR. Accordingly, UltraTech’s green-energy usage will be >60% by FY27-end, as it will be supported by total WHRS capacity of >400MW and renewable energy of ~1.5GW.

Nearly 60% incremental capacity addition targeted in south & east regions

Under phase-III of 22mt capacity addition, this incremental capacity is added in the South (9.3mt), followed by the East (6.3mt), North (3.9mt) and West (2.4mt). No additional capacity addition is targeted in the central region. Post completion, we anticipate Company’s pan-India capacity market share to improve by 200-250bps over the next few years. As nearly 60% of incremental capacity addition (~29mt) is targeted in the southern and eastern regions, it will help the company to improve its capacity share in these regions (currently <20%) and resultantly achieve leadership position. On pan-India basis, we estimate cement supply/demand to register 6.5-7%/8% CAGR over FY23-26E. Regionally, with higher addition in the East and South, prices/profitability may remain volatile in these regions over the next few years.

Expansion to support volume growth; healthy OCF to fund capex requirements

UltraTech’s capacity utilization remained healthy at >80% in FY23. Sustained enhancement in capacity would support industry-leading volume growth and help to retain Company’s leadership position. In our current forecast, we model volume/EBITDA CAGR of 10%/19% over FY23-26E. We expect Company to generate a robust OCF of ~Rs360bn in FY24-26E which would assist in funding its capex requirements.

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