Buy UltraTech Cement Ltd for the Target Rs. 14,600 by Motilal Oswal Financial Services Ltd
Earnings in line; positive outlook on cement demand
FY26 volume growth guidance in double digits.
* UltraTech Cement (UTCEM)’s 1QFY26 earnings were in line with our estimates. EBITDA grew ~46% YoY to INR44.1b. EBITDA/t increased ~33% YoY to INR1,197 (estimated INR1,186). OPM surged 4.7pp YoY to ~21%. Adj. PAT increased ~44% YoY to INR22.5b.
* Management highlighted that healthy demand momentum was driven by a pickup in government-led infrastructure projects. It expects a pickup in rural markets, and urban housing is likely to fuel cement demand over the next few quarters. UTCEM guided a double-digit volume growth in FY26. Further, the integration of acquired assets (ICEM and Kesoram) is progressing well, with more focus on efficiency and productivity improvement. Management reiterated its long-term growth outlook driven by operational efficiency, capacity expansions, and maintenance of a strong balance sheet.
* We broadly retain our earnings estimates for FY26/FY27. We also introduce our FY28 estimates with this note. The stock trades at 22x/18x FY26E/FY27E EV/EBITDA. We value UTCEM at 20x Jun’27E EV/EBITDA to arrive at our TP of INR14,600. Reiterate BUY.
Volume rises ~10% YoY; EBITDA/t at INR1,197 (est. INR1,186)
UTCEM’s consol. revenue/EBITDA/adj. PAT stood at INR212.8b/INR44.1b/ INR22.5b (+13%/+46%/+44% YoY; -3%/+1%/+2% vs. our estimates). Volume grew ~10% YoY to 36.8mt (in line). RMC revenue was up 23% YoY, while white cement revenue declined ~3% YoY. Other operating income/t stood at INR64 vs. INR57/INR67 in 1QFY25/4QFY25.
* Blended realization improved ~3% YoY/QoQ. The grey cement realization increased ~2% QoQ (while, excluding India Cements, the grey cement realization was up ~3% QoQ). Opex/t was down 3% YoY (up 2% QoQ), with variable cost/t declining ~1% YoY. Freight/other costs per ton declined 4%/ 9% YoY. However, staff cost/t rose ~14% YoY. EBITDA/t rose ~33% YoY to INR1,197. OPM surged 4.7pp YoY to ~21% for the quarter.
* Depreciation/interest expenses rose ~21%/33% YoY, and other income grew ~7% YoY. ETR stood at 26.1% vs. 19.6%/20.1% in 1QFY25/4QFY25.
Highlights from the management commentary
* Cement demand in Q1FY26 was steady, supported by strong government capex. Key states driving demand were Bihar, Andhra Pradesh, Gujarat, and Maharashtra, which saw higher YoY spending. Government capex has started improving and would support volume growth going forward.
* Fuel costs increased sequentially in 1QFY26 due to an increase in blended fuel consumption costs. However, management expects fuel costs to decline and remain range-bound unless global shocks hit. Fuel consumption costs stood at INR1.78/Kcal vs. INR2.00/1.73 per kcal in 1QFY25/4QFY25.
* Capex guidance is at INR100b in FY26, with INR20b already incurred in 1QF26. Consolidated net debt stood at INR163.4b vs. INR54.8b in Jun’24, while standalone net debt is at INR137.1b vs. INR33.2b in Jun’24..
Valuation and view
* UTCEM remains our preferred pick in the cement space given its leadership position in the Indian cement industry, successful integration of acquired assets, cost-saving initiatives, and strong balance sheet (generating strong cash flow to fund its organic expansion and other operational capex). Over the years, the company has balanced out its pan-India presence with all-round capacity expansions. We believe the company should benefit from a recovery in cement demand and a positive pricing trend.
* We estimate a CAGR of 14%/25%/30% in consolidated revenue/EBITDA/PAT over FY25-FY28. We estimate its consolidated volume CAGR at ~12% and EBITDA/t of INR1,160/INR1,250/INR1,290 in FY26/FY27/FY28E vs. INR920 in FY25. UTCEM is estimated to continue gaining market share with its robust capacity expansion and increasing scale of operations. We estimate its net debt to decline to INR30.0b (vs. INR163.4b as of Jun’25) and net debt-to-EBITDA ratio at 0.1x by FY28 (vs. 1.2x as of Jun’25). We value UTCEM at 20x Jun’27E EV/EBITDA to arrive at our TP of INR14,600. Reiterate BUY..
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
