Buy UltraTech Cement Ltd for the Target Rs. 13,510 by Axis Securities Ltd
Operating Performance Largely Inline; Retain BUY
Est. vs. Actual for Q4FY25: Revenue – BEAT; EBITDA Margin – INLINE; PAT – MISS
Change in Estimates post Q4FY25 (Abs.)
FY26E/FY27E: Revenue: 1%/1%; EBITDA: -2%/-1%; PAT: -8%/-8%
Recommendation Rationale
* Capacity expansion to drive volume growth: The company’s capacity expansion is on track. Its total grinding capacity in India stands at 183 mtpa after acquiring India Cement’s assets. It plans to add 12 mtpa in FY26 and another 15 mtpa in FY27, raising its cement manufacturing capacity to 209 mtpa, including Kesoram’s 10.8.mtpa Following the second and third phases of expansion, consolidated grinding capacity will reach 216 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 an 11% CAGR over FY24–27E.
* EBITDA margins to improve on lower cost & efficiency gain: During the quarter, the overall cost of production fell by 5% YoY and 3% QoQ to Rs 4,497 per tonne, driven by efficiency gains and operating leverage benefits. 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 the company's EBITDA margin to rise to 22% by FY27, led by higher volumes, better realisations, and continued cost optimisation.
* Sector consolidation to benefit large 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 capitalize 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
Current Valuation: 19xFY27E EV/EBITDA (Earlier Valuation: 19x FY27E EV/EBITDA).
Current TP: Rs 13,510/share (Earlier TP: Rs 13,510/share)
Recommendation: We maintain our BUY recommendation on the stock.
Alternative BUY Ideas from our Sector Coverage: Dalmia Bharat (TP-2,260/share), ACC Ltd
Financial Performance
UTCL reported a good set of numbers during the quarter. Volume/Revenue/EBITDA was above expectations, and PAT was below expectations, led by a higher realisation, better volume growth and controlled cost QoQ. The revenue/volume/EBITDA/PAT grew by 13%/17%/12%/10% respectively YoY. The company reported a profit of Rs 2,482 Cr against Rs 2,258 Cr in Q4FY24 (below expectations) owing to higher depreciation, finance cost and lower other income. The company recorded an EBITDA margin of 20% (vs. our estimates of 20.4%) against 20.1% YoY. The quarter’s volume stood at 41.02 mntpa (Grey & White Cement), up 17% YoY including cement sales from Kesoram and India Cement assets. Excluding acquired assets, operating EBITDA/mt was Rs 1,270/mt, up 7% YoY and 32% QoQ. On a consolidated basis UTCL’s EBITDA/tonne stood at Rs 1,126, down 4% YoY but up 18% QoQ, and it reported blended realisation/tonne of Rs 5,662, down 3% YoY and flattish QoQ. Cement realisation was higher by 1.6% at Rs 5,052 QoQ. The company’s cost/tonne declined by 5%/3% QoQ/YoY to Rs 4,497, which was led by lower power/fuel, freight cost, and other expenses cost YoY/QoQ.
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SEBI Registration number is INZ00016163
