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Improving Fundamentals make us more bullish!

We maintain our BUY rating but increase our TP to INR15,210 as we 1) Increase Volume / EBITDA per ton and EBITDA assumptions higher (Exhibit 2) to factor in volumes from Kesoram / India Cement acquisition integrations and subsequent turnaround 2) Factor in benefit from cost optimisation program 3) Factor in improving Cement pricing situation across the country and 4) Now incorporate a robust EV to CE (Enterprise Value to Capital Employed) based valuation frame work (Exhibit 3) which allows us a rational basis to assign a valuation multiple that captures improving fundamentals (ROCE expansion by 720bps over FY25-28E).

We forecast UTCEM’s EBITDA to grow at a CAGR of 26.7% over FY25–28E, supported by our assumptions of volume growth at 18.0%/6.0%/6.0% and realisation growth of 2.5%/0.5%/0.0% in FY26E/FY27E/FY28E, respectively. We remain positive on UTCEM’s well-diversified, all-India capacity mix, particularly its healthy exposure (upside optionality) to the South (~28%), where prices have increased by ~INR45/bag YTD. Its presence in the East (~20%) also benefits from a ~INR18/bag price hike, while the North (~19%), West (~17%), and Central (~16%) markets have seen price increases of ~INR5/bag, ~INR2/bag, and ~INR3/bag, respectively. This Pan-India footprint makes UTCEM a preferred player for investors who would like to play the India Cement story.

We arrive at a 1-year forward TP of INR 15,210/share for UTCEM. We now value UTCEM on our EV/CE framework – we assign an EV/CE multiple of 3.80x/3.80x for FY27E/28E, which we believe is conservative given the increase of ROCE from 8.4% in FY25 to ~15.6% in FY28E under reasonable operational assumptions. This valuation framework gives us the flexibility to assign a commensurate valuation multiple basis an objective assessment of the quantifiable forecast financial performance of the company. We do a sanity check of our EV/CE TP using implied EV/EBITDA, P/BV, and P/E multiples. On our TP of INR 15,210, FY28E implied EVEBITDA/PB/PE multiples are 19.7x/2.4x/27.7x. Management has indicated double-digit volume growth guidance. Slowdown in construction activities due to heatwaves, sudden large spike in petcoke prices as a result of various global dynamics are risks to our BUY rating.

Like-for-like volume growth (adjusted for Kesoram & India Cements) is muted, realisations & EBITDA/t are in line with expectations:

UTCEM reported Q4FY25 consolidated Revenue and EBITDA of INR230.6 Bn (+13.0% YoY, 29.7% QoQ) and INR46.2 Bn (+12.3% YoY, +59.5% QoQ) vs CEBPL estimates of INR228.7 Bn and INR47.7 Bn, respectively. In our view market expectation of Q4FY25 EBITDA was in the range of INR 45.5 - 48.0 Bn, so the reported numbers are in line with street expectations. Total volume for Q4 stood at 41.0 Mnt (including Kesoram & India Cement) (vs CEBPL est. 39.6 Mnt), up 16.9% YoY, which is the only disappointing factor from the results.

Realization/t came in at INR5,622/t (-3.4% YoY), which is below CEBPL est. of INR5,775/t. Total cost/t came in at INR4,497/t (-3.3% YoY). As a result, EBITDA/t came in at INR 1,126/t (vs CEBPL est. INR1,204/t), down 4.0% YoY. We have tried to triangulate EBITDA/t adjusted for Kesoram & India Cements, which would be in the range of ~INR1,200/t, in line with CEBPL est.

Targeting 215.9 Mnt of capacity by FY27 end, which will lead to 10% volume CAGR over FY25-28E:

Management aims to increase its cement capacity from 188.8 Mtpa in FY25 to 215 Mtpa by FY27, implying a CAGR of 6.7%. To support this expansion strategy, UTCEM has raised its capex target for FY26E from INR90 Bn to INR100 Bn. We expect this robust expansion and recent acquisitions to drive a volume CAGR of 9.9% (FY25-28E), supported by volume growth of 18% in FY26, followed by 6% growth each in FY27 and FY28. Management has indicated that post-FY26, capex is expected to moderate as a significant portion of the expansion projects would be completed.

Growth in EBITDA/t to drive from focus on total cost reduction by 300/t by FY27:

UTCEM is actively working to enhance its Waste Heat Recovery System capacity from 351 MW in FY25 to 500 MW by FY27. Additionally, it is targeting 2.1 GW of renewable energy capacity by FY27, which is expected to meet ~30% of its total energy requirements. We believe these initiatives will help lower power and fuel costs by ~INR100/t by FY27. Furthermore, the company plans to reduce its lead distance by 25 km, which is expected to bring down freight costs by ~INR60/t. With its consistent focus on cost optimization, we expect UTCEM’s EBITDA/t to improve to INR1,221/t in FY26E and further to INR1,326/t in FY27E.

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