Buy Ultratech Cement Ltd for the Target Rs 14,623 by Prabhudas Liladhar Ltd
Cost headwinds today, growth momentum intact
UltraTech Cement (UTCEM) reported lower-than-expected Q2FY27 operating performance, primarily due to a sharp increase in fuel costs. Cons. volumes grew 13% YoY to 38.2mt, led by resilient demand and higher capacity utilisation. NSR increased 2.2% QoQ, supported by improved cement pricing towards the end of the quarter. Higher fuel costs amid elevated petcoke prices, higher freight costs due to increase in diesel prices and higher other expenses weighed on profitability, resulting in operating EBITDA/t of INR974. Mgmt. expects further price hikes over the next couple of months, with the full benefit of recent increases reflected in Q3FY27 earnings. It reiterated its INR1,400/t EBITDA target for Mar’28, expecting price increases to offset cost pressures under normal business conditions.
Mgmt. remains constructive on demand supported by housing, infrastructure, data centres, semiconductors and urban redevelopment. The key monitorable remains pricing, with spot realizations already ~5% above the Q2 average and further hikes expected to offset elevated fuel costs. While West Asia-led cost inflation remains a near-term headwind, UTCEM’s scale, operating leverage and ability to pass on cost increases should support earnings recovery. Mgmt. also indicated that existing capacity is increasingly stretched, reinforcing the need for the next expansion phase beyond 240mt. We believe UTCEM remains well positioned to sustain industry outperformance, backed by disciplined capacity additions, pricing sustainability and cost efficiencies. We maintain our FY28/29E EBITDA estimate and expect UTCEM’s volume/EBITDA to deliver a CAGR of 12%/14% over FY26-29E The stock is trading at EV of 14.2x/12.6x FY28/29E EBITDA. Maintain ‘BUY’ with TP of INR14,623 (earlier INR14,691) valuing at same 18x EV of Sep’28E EBITDA.
Higher volume aided revenue growth:
Cons. revenue grew 19% YoY to INR233bn (-5% QoQ; PLe INR229bn) on strong 12.3% YoY volume growth to 38.2mt (-7.5% QoQ; PLe 38.2mt) on resilient demand across segments and higher focus on premium products. Average blended realization improved 2.2% QoQ to INR6,095/t (+5.8% YoY; better than PLe INR5,997/t), led by increase in cement prices across regions during the quarter. Domestic grey sales volumes grew 10.7% YoY (adjusting inter-co. of ICEM) this quarter.
ICEM’s EBITDA/t rises to INR511:
ICEM (India Cements) volume grew 16% YoY to 2.83mt in Q2FY27, NSR grew 2% QoQ to INR4,035/t. EBITDA/t was at INR511. Capex for ICEM is expected to be INR20bn over the next 2 years, and capacity is expected to reach 17.55mtpa by Mar’27.
EBITDA/t impacted by higher fuel costs: Cons. EBITDA grew 20% YoY to INR37.2bn (-26% QoQ; PLe INR40bn), aided by strong volume growth but negated by higher fuel costs. Std. EBITDA grew 19% YoY to INR33bn (-28% QoQ; PLe INR35.5bn). Cons. RM cost/t declined 13% YoY to INR1,000 despite increase in costs in domestic ops led by industrial diesel & limestone raising. P&F cost/t increased 10.4% YoY to INR1,442 due to higher petcoke prices. Avg. fuel rate was INR2.09/kcal vs INR1.9/kcal in Q1FY27. Freight cost increased 3.8% YoY to INR1,258/t despite decline in lead distance by 2km QoQ to 358km in Q2. Other expenses/t increased 2% YoY to INR897 due to higher packaging costs. Resultant, cons. EBITDA/t grew 7% YoY to INR974/t (-20% QoQ; PLe INR1,047/t). Std. EBITDA/t declined 8% YoY to INR979/t (-20% QoQ; PLe INR1,049/t). Cons. reported PAT grew 21% YoY to INR15bn (-43% QoQ; PLe INR20.1bn).
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SEBI Registration number is INH000000933
