Buy UltraTech Cement Ltd for the Target Rs 13,200 by Emkay Global Financial Services Ltd
UltraTech Cement (UTCEM) reported consolidated EBITDA of ~Rs37bn (up 20% yoy), in line with our and street estimates. Domestic grey cement volumes grew ~14% yoy, well ahead of industry growth of ~9%, while grey realization dipped <1% qoq (up ~2% yoy) on softer Jul/Aug-26. Unit operating cost rose ~8% qoq (Rs370/t), primarily due to higher RM + fuel costs (Rs210) and the balance owing to negative operating leverage. However, blended realizations increased by ~2% sequentially (~Rs130/t) led by ~30%/~50% growth in RMC/building material, respectively. Consequently, EBITDA/t stood at Rs974 (Emkay: Rs980) vs Rs914 in 2QFY26 and Rs1,214 in 1QFY27. Our view: UTCEM demonstrated strong volume growth and healthy margin profile in a challenging quarter. Going ahead, we expect an improving margin trajectory, as the industry realizes operating leverage benefits (2H), aided by cement price hikes taken during early 3QFY27 (spot prices up ~5% vs 2Q average). UTCEM remains our top pick, given its purchasing power (read scale) and strengthening market-share position amid a volatile environment. We broadly maintain our estimates and continue to value UTCEM at 17x Sep-28E EV/EBITDA while raising TP by ~2% to Rs13,200 (from Rs13,000). The stock trades at ~14x 1YF EV/EBITDA, akin to the trough seen during the Russia-Ukraine war. Hence, we consider UTCEM as a safe bet on risk-reward ratio; maintain BUY.
Robust volumes and stable pricing offset rising costs
UTCEM’s consolidated revenue grew ~19% yoy (down ~6% qoq) to ~Rs233bn, driven by ~13% volume growth. Capacity utilization improved to 71% from ~66% in 2QFY26 (on higher capacity base). Grey realization was broadly stable (down <1% qoq), as soft Jul/Aug-26 offset healthy recovery in Sep-26. On the cost front, unit variable cost rose ~6% on both yoy and qoq basis (Rs210), due to inflation in unit (RM+P&F) cost (up ~8%/9% yoy/qoq). Blended fuel rate climbed to Rs2.09/mcal from Rs1.90 in 1QFY27, despite cutting pet coke usage by 11pps qoq. Fixed cost/t jumped ~15% qoq (flat yoy) on operating de-leverage, taking unit operating cost up ~Rs370/t qoq. PAT grew ~21% yoy to ~Rs15bn, ~6% below our estimate, due to higher interest cost on issuance of fresh NCDs.
Marching toward 240mtpa with a resilient balance sheet
UTCEM commissioned 4.6mtpa in Sep-26, taking consolidated capacity to ~210mtpa. The company remains on track to reach >240mtpa by FY28-end and will announce its next phase of organic expansion by FY27-end. The management retained FY27 capex guidance at ~Rs100bn. In 1HFY27, the company generated OCF of ~Rs69bn (up ~24% yoy), and spent ~Rs57bn on capex, resulting in FCF of ~Rs12bn. The ~Rs70bn dividend payout was thus largely funded through ~Rs54bn of fresh borrowings (including Rs50bn of NCD). As a result, net debt rose to ~Rs235bn (vs ~Rs166bn in Mar-26), raising net debt/EBITDA to ~1.3x from ~0.9x; management expects it to fall below 1x by Mar-27.
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