UltraTech Cement: In today’s trading session, shares of UltraTech Cement, the flagship business of the Aditya Birla Group, saw a rise of 2.60% and reached a new all-time high of ₹8,960 per share. This followed the company’s announcement on Wednesday in an exchange filing that it had paid ₹169.79 crore to purchase Burnpur Cement Limited’s 0.54 mtpa cement grinding assets, which are located in Patratu, Jharkhand.
The company’s total capacity in India has reached 133 mtpa with this development, strengthening its position as the nation’s largest cement maker. This significant investment signifies UltraTech Cement’s debut in the state of Jharkhand.
With a CAGR of 9% from FY21 to FY23, the market for cement has remained strong since the Covid-19 pandemic. The increasing demand for urban housing and real estate, as well as government investment in affordable housing schemes and infrastructure development, are all blamed for this boom in demand.
Advantageous elements that have also helped cement companies—like UltraTech—deliver impressive financial results for the quarter that ended in September include a drop in the cost of raw materials, less rainfall than anticipated, and calculated pricing increases.
Domestic brokerage company Motilal Oswal forecasts a continuous increase in cement demand in the coming years, driven by major factors such as government-led infrastructure projects, housing schemes, individual housing sectors, and a healthy rebound in the real estate industry.
The road sector is expected to contribute more to this rise, since both the Ministry of Road Transport and Highways and the National Highways Authority of India (NHAI) have reported YoY increases in total outlays of 25% and 14%, respectively. Demand will be bolstered further by a rise in industrial and commercial development activity, according to the report.
According to the brokerage, demand is expected to grow at a rate of 7-8% CAGR from FY23 to FY28, or 575 million metric tons, 1.5 times more than the 390 million metric tons in FY23.
The brokerage projects that as government spending on infrastructure development increases, the share of infrastructure in cement demand will rise from 24% in FY23 to 29% in the long run. In contrast, it projects that the share of residential construction will drop to 62% from 67% and the share of industrial and commercial construction will stay at 9%.
The brokerage highlights UltraTech Cement’s continuous endeavors to augment sustainability through the augmentation of alternate raw material use. The brokerage claims that as a result of this endeavor, the clinker component has decreased from 70.9% in FY23 to 69.4% now, with blended cement making up 70% as opposed to 69% in FY23.
The brokerage expects UltraTech Cement’s consolidated volume to grow at a 10% CAGR between FY23 and FY26. It also forecasts EBITDA/t at 1,110/ 1,210/ 1,280 in FY24/FY25/FY26, up from 1,005 in FY23 (EBITDA/t was 1,225 in FY22).
While UltraTech Cement’s net debt climbed to 49 billion as of September 2023 from 27 billion on March 22 due to increased expenditure and dividend payout, Motilal Oswal anticipates net debt to decrease in 2HFY24 due to better profitability and working capital management.
The brokerage expects the company’s solid cash flows (estimated cumulative OCF of 406 billion over FY23-26) to sustain its aggressive investment plan. As a result, the brokerage maintained its strong outlook on UltraTech Cement with a ‘buy’ rating and a target price of $10,100 per share.
