Buy UltraTech Cement Ltd For Target Rs. 13,500 By JM Financial Services
In-line quarter; market share gains to continue
UltraTech Cement’s consolidated EBITDA for 4QFY25 was INR 46.2bn with blended EBITDA/tn at INR 1,126, broadly in line with estimates. The YoY and QoQ numbers are not directly comparable owing to the acquisition of India Cements and Kesoram Industries. In FY25, UltraTech added ~43mt grey cement capacity (62% through the inorganic route) taking its total domestic grey cement capacity to 183mt. It is likely to add another 27mt capacity over the next couple of years to take total capacity to 211mt, which will help it to gain capacity market share (~450bps increase in share to 27% by FY27E), supported by the balance sheet. It has enough levers for structural cost improvement of INR 300/tn over the the next couple of years (INR 86/tn already achieved in FY25). This will help it to either increase market share further or achieve industry leading profitability. We believe UltraTech is poised for structural improvement in return ratios over the next 3-4 years owing to i) rising asset turnover; ii) low cost of expansion; and iii) improving profitability. Factoring in a better pricing scenario, we have increased our FY26E-27E EBITDA estimates by 2% and revised our Mar’26E TP to INR 13,500 (earlier INR 13,000) based on 19x FY27E EV/E. UltraTech is our top pick in the sector.
* Result summary: UltraTech’s consolidated volume grew by 17% YoY / 28% QoQ to 41 mt. On a like-to-like basis, volume grew 5% YoY. India Cements volume grew 9% YoY to 2.64mt. Grey cement realisation declined 2.3% YoY/ 1.6% QoQ to INR 5,052. Excluding Kesoram and India Cements, EBITDA/tn was INR 1,225 (+INR 274/tn sequentially) in 4Q. In FY25, the company generated FCF of negative INR 108bn. OCF generation (post w/cap blockage of INR 8.6bn) of INR 94bn was utilised for capex spend of INR 94bn and strategic investments of INR 108bn. Consolidated net debt increased INR 150bn YoY and INR 11.6bn QoQ to ~INR 178bn as of Mar’25.
* What we liked: Market share gains; robust demand outlook and improving pricing scenario.
* What we did not like: Increase in net debt.
* Earnings Call KTAs: 1) The management highlighted that industry volume likely grew 4% YoY in FY25. It has guided for sustainable volume growth of 7-8% in the coming years owing to government focus on infra and housing projects and increased rural/ urban demand; 2) It expects double-digit volume growth on a like-to-like basis for FY26 (ex: Kesoram and India Cements); 3) It spent INR 90bn towards organic capex in FY25, and targets INR 100bn capex for FY26, out of which 70% will be allocated towards strategic investments/growth, 15% for ESG capex and 16% for other capex purposes; 5) In India Cements, it targets EBITDA/tn of INR 500, 700 and >1,000 for FY26/ FY27 and FY28 respectively. The company is likely to do a tolling arrangement and will gradually get it rebranded to UltraTech by FY27; 6) In 4Q, Kesoram volume was 1.53mt with EBITDA/tn at INR 399. In FY25, its volume was 6.87mt with EBITDA/tn at INR 112; 7) In the building products division, the management is targeting revenue of INR 30bn over the next 3 years (vs. revenue of INR 9.2bn in FY25).
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SEBI Registration Number is INM000010361
