Buy UltraTech Cement Ltd For Target Rs. 13,840 By Axis Securities Ltd
Operating Performance Largely Inline; Retain BUY
Est. vs. Actual for Q1FY26: Revenue – INLINE; EBITDA Margin – BEAT; PAT – MISS
Change in Estimates post Q1FY26 (Abs.)
FY26E/FY27E: Revenue: 1%/2%; EBITDA: 0%/2%; PAT: 0%/2%
Recommendation Rationale
* Volume Growth Backed by Robust Capacity Expansion Plans: The company’s capacity expansion is on track. Its total grinding capacity in India stands at 187 mtpa after acquiring India Cement’s assets. It plans to add 11 mtpa in FY26 and another 15 mtpa in FY27, raising its cement manufacturing capacity to 212 mtpa. Following the second and third phases of expansion, consolidated grinding capacity will reach 217.6 mtpa. With expanded capacity and scale, the company is positioned to strengthen its market leadership, targeting a market share increase from 25% to 28%. We project volume growth at a 12% CAGR over FY24–27E.
* Operational Efficiencies and Cost Levers to Drive Margin Upside: During the quarter, the overall cost of production fell by 3% YoY to Rs 4,579 per tonne, driven by efficiency gains and lower power and fuel and logistic costs. In FY25, total efficiency improvements saved Rs 86 per tonne. The company projects a total cost reduction of Rs 200–300 per tonne over the next 2–3 years. Additionally, a higher blending ratio, increased sales of premium products, and greater use of green energy are expected to support margin expansion. We forecast its EBITDA margin to rise to 22% by FY27, led by higher volumes, better realisations, and continued cost optimisation.
* Cement Sector Consolidation Enhances Competitive Advantage for Big Players: Between 2013 and 2024, large players grew their market share from 46% to 57%. By FY27–28, it is expected to rise further to 65%–70%. As consolidation and capacity expansion among top players accelerate, market share gains will continue, supporting stronger cement pricing, better economies of scale, and improved supply chain efficiency. As the country's leading player, the company is well-positioned to capitalise on this trend over the medium to long term. Cement demand in its core regions is expected to stay strong, driven by higher infrastructure spending, growth in affordable and rural housing, increased private Capex, and a robust real estate market. We expect the company to maintain double-digit growth over this period.
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