Buy Ultratech Cement Ltd For Target Rs. 15,210 By Choice Broking Ltd
Core Investment Thesis Intact
We maintain our BUY rating and TP of INR 15,210 on Ultratech Cement Ltd. (UTCEM) as our core investment thesis remains unchanged. We maintain our Volume / EBITDA per ton and EBITDA assumptions, which were increased post Q4FY25 to factor in volumes from Kesoram / India Cement acquisition integrations and subsequent turnaround. We continue to be positive on UTCEM due to 1) Ambitious & continuous capacity expansion, 2) Proactive cost optimization, 3) Favorable pricing environment, and 4) Expansion in margin accretive value-added businesses. Our robust EV to CE (Enterprise Value to Capital Employed) based valuation framework (Exhibit 3) allows us rational basis to assign a valuation multiple that captures improving fundamentals (ROCE expansion by 725bps over FY25- 28E).
We forecast UTCEM’s EBITDA to grow at a CAGR of 26.6% over FY25–28E, supported by our assumptions of volume growth at 18.0%/6.0%/6.0% and realisation growth of 4.5%/0.5%/0.0% in FY26E/FY27E/FY28E, respectively. We remain positive on UTCEM’s well-diversified, all-India capacity mix, strategic diversification into wires & cables, and successful integration & turnaround of acquired India Cement assets.
We arrive at a 1-year forward TP of INR 15,210/share for UTCEM. We value UTCEM on our EV/CE framework – we assign an EV/CE multiple of 3.75x/3.75x 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. 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, FY27E, implied EV/EBITDA/PB/PE multiples are 20.0x/4.7x/34.4x.
Q1FY26: Overall result in line with optimistic expectations:
UTCEM reported Q1FY26 consolidated Revenue and EBITDA of INR 212.8Bn (+13.1% YoY, -7.8% QoQ) and INR 44.1Bn (+46.2% YoY, -4.5% QoQ) vs Choice Institutional Equities (CIE) estimates of INR 217.3Bn and INR 44.3Bn, respectively. In our view market expectation of Q1FY26 EBITDA was in the range of INR 44.0 - 46.0Bn. Total volume for Q1 stood at 36.8 Mnt (including Kesoram & India Cement) (vs CIE est. 37.4 Mnt), up 15.3% YoY.
Realization/t came in at INR 5,777/t (-1.9% YoY and +2.7% QoQ), which is slightly lower than CIE’s est. of INR 5,808/t. Total cost/t came in at INR 4,579/t (-7.4% YoY and +1.8% QoQ). As a result, EBITDA/t came in at INR 1,197/t (vs CIE est. INR 1,185/t), up 26.8% YoY and 6.4% QoQ.
Strategic Capacity Expansion to Drive Double-Digit Growth:
UTCEM is aggressively expanding capacity through phased organic growth, brownfield and greenfield projects, and strategic integration of Kesoram and India Cements assets. With ~13.5 Mnt of new capacity expected to be commissioned and a targeted network of 82 plant locations by FY27E, the company is well-positioned to achieve double-digit volume growth. We expect UTCEM's volumes to grow by 18% in FY26E, outpacing industry growth and aligning with India’s infrastructure-driven demand.
Key Risks: Integration Risk from Recent Acquisitions: Despite management's claims of smooth integration of India Cements and Kesoram assets, there remains a risk of potential delays or complexities in fully aligning operations, systems, and realizing targeted synergies.
Uncertainty in Brand Transition and Market Acceptance: UTCEM plans to fully rebrand acquired assets like India Cements by FY27E, faces risks due to strong regional brand equity, especially in the South. Delays or resistance in market acceptance could impact pricing power, volume growth, and synergy realization.
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