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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.

Sector Outlook: Positive

Company Outlook & Guidance: The management has guided for double-digit volume growth for the company in FY26. Given the government’s focus on infrastructure and housing projects, along with increased rural and urban demand, a sustainable volume growth of 7–8% is expected for the industry going forward. Pricing remains dynamic and will be determined by market forces. Management noted that current prices are marginally higher than the exit prices of Q1FY26.

Current Valuation: 18.5xFY27E EV/EBITDA (Earlier Valuation: 18.5x FY27E EV/EBITDA).

Current TP: Rs 13,840/share (Earlier TP: Rs 13,510/share)

Recommendation: We maintain our BUY recommendation on the stock.

Financial Performance

UTCL reported a good set of numbers for Q1FY26. Volume/Revenue/EBITDA was above expectations, but PAT was below expectations, led by a higher realisation, better volume growth and controlled cost QoQ. The revenue/volume/EBITDA/PAT grew by 18%/15%/45%/31%, respectively, YoY.

Financial Performance (Cont’)

The company reported a profit of Rs 2,226 Cr against Rs 1,687 Cr in Q1FY25 (below expectations) owing to higher depreciation, finance cost and higher tax. It recorded an EBITDA margin of 20.7% (vs. our estimates of 20.4%) against 16.8% YoY. The quarter’s volume stood at 36.8 mntpa (Grey and White Cement), up 15% YoY on a like-for-like basis and 9.7% on an adjusted basis, including cement sales from Kesoram and India Cement assets. On a consolidated basis, UTCL’s EBITDA/tonne stood at Rs 1,200, up 26% YoY and 6% QoQ, and it reported blended realisation/tonne of Rs 5,777, up 3% YoY and 2% QoQ. Cement realisation was higher by 2.4% YoY at Rs 5,165 and 2.2% QoQ. The company’s cost/tonne declined by 3% YoY to Rs 4,597, which was led by lower power/fuel, freight cost, and other expenses cost YoY.

Outlook

The company delivered an operational performance broadly in line with expectations. Key metrics such as volume growth, EBITDA/tonne, and margin trajectory remained steady. We maintain our BUY rating on the stock, supported by long-term growth visibility, improving cost efficiency, and strategic initiatives like the tolling arrangement with India Cements. The overall industry outlook remains positive, and we expect the company to grow its Volume/Revenue/EBITDA/APAT at 12%/12%/18%/22% CAGR over FY24–FY27E. This will be driven by robust demand, improvement in prices, upcoming new capacity, ramping up of recently commissioned capacity, the benefit of lower commodity prices, higher blending ratio, and increasing share of green energy.

Valuation & Recommendation

We pencil in higher growth driven by market share gains and efficiency improvements, as industry consolidation continues to benefit larger players. The stock is currently trading at 18x FY27E EV/EBITDA, which is at a premium to its 10-year average multiple of 16x. Despite the premium valuation, we remain constructive on the long-term outlook and maintain our BUY rating with a target price of Rs 13,840/share, implying a 10% upside from the current market price.

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