Buy UltraTech Cement for the Target Rs 13,800 by Motilal Oswal Financial Services Ltd
Constructive demand outlook; pricing remains stable Near-term cost pressure to weigh on 2Q margin sequentially
* UltraTech Cement’s (UTCEM) 1QFY27 operating performance was in line with our estimates. Consol. revenue/EBITDA increased ~16%/14% YoY to INR246b/INR50b. EBITDA/t inched up ~1% YoY to INR1,214. OPM contracted ~40bp YoY to ~20%. Adjusted PAT grew ~16% YoY to INR26.1b (~5% beat, led by lower-than-estimated depreciation and interest costs).
* Management remained constructive on the medium-term cement demand outlook, backed by a robust pipeline of infrastructure projects, healthy housing demand, urban redevelopment, and commercial real estate activity. It is targeting double-digit volume growth in grey cement in FY27. It expects 2QFY27 profitability to be impacted by higher fuel costs, the monsoon season, and scheduled kiln maintenance. It expects variable costs to increase by ~INR130 140/ton QoQ in 2Q. The successful integration of the Kesoram and ICEM brands under the UTCEM brand continues to support realizations. The company has guided to maintain net debt-to-EBITDA ratio at <1.0x by end-FY27, despite ongoing growth plans.
* We largely maintain our earnings estimates for FY27/FY28. We value UTCEM at 18x FY28E EV/EBITDA to arrive at a TP of INR13,800. Reiterate BUY.
Sales volume up ~12% YoY; blended realization up ~3% YoY to INR5,967
* Consol. revenue/EBITDA/adj. PAT stood at INR246b/INR50b/INR26b (+16%/ +14%/+16% YoY and +2%/+1%/+5% vs. our estimates). Sales volume grew ~12% YoY to 41.3mt (in line). RMC revenue grew ~22% (+12% vs. estimate) and white cement revenue grew ~23% YoY (+12% vs. estimate). Other operating income/t stood at INR44 vs. INR64/INR74 in 1QFY26/4QFY26.
* Blended realization increased ~3% YoY/QoQ (each). Grey cement realization increased ~1% YoY/~4% QoQ. Opex/t increased ~4% YoY (+5% QoQ), led by ~4%/11% increase in variable/other expenses, while freight cost/t remained flat YoY. EBITDA/t increased ~1% YoY to INR1,214. Depreciation/interest costs rose ~8%/5% YoY, while other income declined ~28% YoY. ETR was 25.2% vs. 26.1%/24.6% in 1QFY26/4QFY26.
* Net debt stood at INR159b vs INR166b in Mar’26. Net debt-to-EBITDA improved to 0.87x at the end of 1QFY27 (vs. 0.94x at FY26-end)
Highlights from the management commentary
* Among regions, Central and West India recorded the strongest growth (>15% YoY), while North and South also delivered healthy double-digit growth. East India witnessed relatively slower growth, primarily due to election-related disruptions and temporary labor shortages.
* Fuel consumption cost stood at INR1.90/Kcal vs. INR1.78/INR1.77 per kcal in 1Q/4QFY26. In the current quarter, it is expected to reach INR2.0/Kcal and likely peak at that level, as the company has procured its inventory.
* The INR18b C&W investment remains on schedule and within budget. Of the approved capex, INR8.9b has already been spent or committed. Commercial commissioning and product launch remain on track for 3QFY27 (Oct-Dec'26), in line with the earlier guidance
Valuation and view
* UTCEM's 1QFY27 operating performance was broadly in line with our estimates. Demand momentum has been strong, driven by government-led infra projects, affordable housing, and urbanization. While profitability is expected to be under pressure in 2QFY27 due to elevated cost inflation, opex/t is likely to peak during the quarter. The company should benefit from its large scale of operation, brand value, and cost control measures.
* We estimate a CAGR of 12%/17%/19% in consolidated revenue/EBITDA/PAT over FY26-28. We estimate its consolidated volume CAGR at ~10% and EBITDA/t of INR1,153/INR1,237 in FY27E/FY28E vs. INR1,103 in FY26. We estimate its net debt at INR184.5b in FY27 (to peak out) vs. INR146.9b in FY26. The net debt-toEBITDA ratio is estimated to remain below 1.0x. We estimate its RoE/RoCE to increase to ~14%/12% by FY28 from ~11%/10% in FY26, backed by higher profitability and lower costs for expansions.
* The stock is currently trading at 18x/15x FY27E/FY28E EV/EBITDA. We value UTCEM at 18x FY28E EV/EBITDA to arrive at a TP of INR13,800. Reiterate BUY
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