Buy UltraTech Cement Ltd For Target Rs. 13,000 By JM Financial Services
Expanding into wires and cables segment
The board of UltraTech Cement has announced the company’s entry into the wires and cables segment with a planned capex outlay of INR 18bn over the next 2 years. The plant will be set up near Bharuch, Gujarat, and the company aims to commission it by Dec’26. On full ramp-up, we estimate potential EBITDA accretion of 4-5% on FY27E EBITDA base. Given the group’s growth ambitions and UltraTech’s robust cashflow generation (OCF of ~INR 290bn over FY26E-27E), we also don’t rule out the possibility of the group entering into other building solution segments in future. Though capex intensity is low and unlikely to stretch the balance sheet, the investment into a non-cement business is likely to raise concerns over capital allocation. We maintain BUY with Mar’26E TP of INR 13,000 based on 19x FY27E EV/E as UltraTech’s return ratios are poised to improve structurally over the next 3-4 years owing to i) rising asset turnover; ii) low cost of expansions; and iii) rising profitability
* Forays into wires & cables segment: UltraTech proposes to extend its footprint in the construction value chain through the wires and cables segment with a planned capex outlay of INR 18bn over the next 2 years. The capex is expected to be financed through a mix of internal accruals and debt. The plant will be set up near Bharuch, Gujarat, and the company aims to commission it by Dec’26. The wires and cables industry has witnessed revenue CAGR of ~13% over FY19-24. UltraTech aims to meet the growing demand for wires and cables across various sectors, including residential, commercial, infrastructure, and industrial applications.
* Is there right to win for UltraTech? UltraTech proposes to leverage its extensive manufacturing expertise coupled with its connect with end-consumers, thereby targeting the highest share of the customer wallet. The company is likely to capitalise on its strong relationships with real estate players (in the B2B segment), distribution reach through UltraTech Building Solutions outlets (>4,400 outlets as of Dec’24, already selling some non-cement products such as construction chemicals, dry mortars, waterproofing, etc.), and better management of the key raw material (copper) through group company Hindalco. This industry typically has asset turnover of 4x-5x, EBITDA margin of ~10-12% and return ratio of 15-20%. Accordingly, on full ramp-up, this would imply potential EBITDA accretion of ~4-5% on FY27E EBITDA base.
* Targeting to strengthen its position as a comprehensive building solutions provider: We estimate FCF generation of >INR 100bn for the company even after factoring in cement growth capex of INR 90bn p.a. over FY26E-27E. UltraTech aims to strengthen its position as a comprehensive building solutions provider. Earlier, the group had announced its entry into the paints segment through Grasim. Given the group’s growth ambitions and UltraTech’s robust cashflow generation, we don’t rule out the possibility of the group entering into other building solution segments in future. Though capex intensity is low and unlikely to stretch the balance sheet (net debt of INR166bn as of Dec’24), the investment into a non-cement business is likely to raise concerns over capital allocation.
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SEBI Registration Number is INM000010361
