UltraTech Cement - Scaling New Heights! Motilal Oswal Take

Motilal Oswal Report

UltraTech Cement Ltd. is breaking new ground with a target to increase its domestic grey cement capacity to ~182 millions of tonnes per annum by FY27E. The company’s capacity compound annual growth rate of 9.5% over FY23-27E is considered encouraging given the higher base. With these expansions, UltraTech Cement maintains its leadership position in the industry.

Cement demand remained strong post Covid-19, reporting a CAGR of ~9% over FY21-23. We believe that demand improvement was fueled by increased government spending on infrastructure development, low-cost housing schemes, and a strong demand from urban housing and real estate sector.

We believe demand momentum would remain robust and estimate a 7-8% CAGR during FY23-28 to 575 million tonne by FY28 (1.5 times from 390 million tonne in FY23).

The company is also focusing on improving and prioritizing its environmental, social and governance goals. It is continuously increasing its use of alternative raw materials, which has led to a reduction in the clinker factor to 69.4% currently from 70.9% in FY23.

Further, UltraTech Cement is investing heavily in renewable energy, and increasing its waste heat recovery systems/other renewable (Solar and Wind) capacities to 465 Megawatt/1.5 Gigawatt by FY27E. The aim is to increase the share of green energy to over 60% by end-FY27, from around 22% currently.

We estimate 10%/19%/29% CAGR in consol. revenue/Ebitda/adjusted profit after tax over FY23-26, driven by higher sales volume, cost savings, lower interest, and tax expenses (by opting the new tax regime from FY24). We estimate its return on equity/return on capital employed to improve to 15%/14% in FY26 vs. 10%/9% in FY23, aided by low cost expansion.

The company’s improving earnings and return ratios, as well as leadership position warrant higher multiples for the stock, which currently trades at 15.5 times/13.0 times FY25E/FY26E enterprise value/Ebitda.

We value the stock at 16 times September ’25E EV/Ebitda to arrive at our target price of Rs 10,100. Reiterate 'Buy'.

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