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UTCEM’s consolidated Q2FY25 volumes stands at 27.8mnt, up 4.3% YoY but down 12.9% QoQ, with driven by revenues declining by 2.45% YoY to INR156.4bn. Cement demand was affected by elections and monsoons. UltraTech achieved 68% capacity utilization for Q2FY25. EBITDA/t was INR725/t, down 24.1/23.8% YoY/QoQ due to higher employee and other costs. PAT for the quarter stood at INR8.3bn, down 35.4% YoY and 51.2% QoQ. EPS for the quarter was INR28.4.

* Robust Capex & Expansion plans: The company intends to allocate around INR 90,000mn for Capex in the current financial year. This investment will cover growth, routine, and maintenance Capex. The company aims to increase its grey cement capacity to 157.0mtpa by FY25E. UltraTech has a strong expansion strategy focused on the East and South regions. In the East, the current capacity of 27.6mtpa is set to rise to 41mtpa by FY27E. Similarly, the South’s capacity of 20.5mtpa is expected to grow to 35.5mtpa by FY27E. A 0.6mtpa grinding unit at Karur, Tamil Nadu, is scheduled for commissioning in Q3FY25E. Additional expansions include 0.6mtpa each at Sonar Bangla and Durgapur, West Bengal, along with a 4.5mtpa unit at Mahir, Madhya Pradesh, all expected to be operational by Q4FY25E. Furthermore, the company plans to add 9.1mtpa in H2FY25E, 11.8mtpa in FY26E, and 20.1mtpa in FY27E, bringing the total cement capacity to 183.5mtpa by FY27E.

* Cost Reduction plan on track- The company aims to achieve cost savings of INR300/t over the next three years by focusing on reducing power and fuel expenses through increased use of Waste Heat Recovery Systems (WHRS) and renewable energy. As of FY24-end, the company’s WHRS capacity stood at 278 MW, which has now expanded to 308 MW, with a target of 450 MW by FY27E. Renewable energy capacity, initially at 612 MW at the start of the year, has grown to 681 MW, with the company aiming to reach 1.8 GW by FY27E. Additionally, the clinker conversion ratio is expected to improve from 1.44 to 1.54 by FY27E. The use of alternative fuels will also increase, rising from 5% in FY24 to 15% by FY27E. The company is working to optimize logistics, targeting a reduction in lead distance from the current 388 km to 360 km by FY27E. These initiatives are projected to help reduce the company’s overall cost per tonne by INR300/t.

* Prices and Demand is expected to improve- Net sales realization for the quarter stood at INR5,616/t, reflecting a decline of 6.4% YoY and 0.7% QoQ. However, management indicated that prices are showing signs of recovery, with an upward trend observed from August to September and stability from September to October. The company reported an increase in prices from INR347 at the end of August to INR354 currently, signaling gradual improvement. Management expects demand to strengthen in H2FY25E as new infrastructure projects gain momentum, which should further support pricing. The company remains optimistic about the market environment, expecting steady performance driven by infrastructure-led demand.

Valuation and Outlook:

In anticipation of rising demand, UltraTech is well-positioned for growth, driven by the government’s strong focus on infrastructure development. The government’s cumulative investment outlay is projected to rise to approximately INR 75 trillion over the next five years, a 1.66x increase compared to INR 47 trillion invested over the previous five years. Additionally, the housing sector continues to perform robustly, with new launches registering double-digit growth consistently over the past three years. This favorable environment provides a solid foundation for UltraTech to capitalize on expanding market opportunities and infrastructure-led demand. As per our FY27E estimates, we are expecting Revenue/EBITDA/PAT to grow at a CAGR of 5.8%/16.0%/19.2% respectively over FY24-FY27E. We assign a EV/EBITDA multiple of 20.0x on Sep- FY27 EBITDA ascribing a target price of INR12,262, maintaining our rating to BUY.

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