UltraTech Cement Ltd. share price target

UltraTech Cement’s (UTCEM) board has approved cement capacity expansion of 22.6 mnte (~17% of expected FY23 India operations base of 130.9 mnte) at a capex of ~Rs129bn (US$76/te which the company expects to complete by FY25. The fresh round of capacity expansion will take UTCEM’s total India grey cement capacity to ~154 mnte from current 114.6 mnte, implying a 10.4% CAGR during the next three years.

UTCEM noted that they have been able to take price hikes in April to pass on the fuel cost spike and if cement and fuel prices were to hold at current levels, its Q1FY23 margin would remain flattish QoQ. It expects to benefit from its low-cost fuel inventory. The company's capacity expansion plans (across grey and white) are on track and would incur ~INR40-50bn Capex towards these. It is also aggressively expanding its green power capacities with a target of ~34% share by the end of 2024E (~20% in Q4FY22). We maintain our estimates for FY23/24E. We maintain BUY on UltraTech (UTCEM), with an unchanged target price of INR 7,960/share (16x Mar-24E consolidated EBITDA). We continue to like the company for its healthy margin outlook and balance sheet management. UTCEM's consolidated EBITDA/APAT in Q4FY22 fell 17/19% YoY (despite 10% revenue growth), owing to weak demand (till mid-Feb), which muted cost pass-through amid rising energy costs. While unitary EBITDA recovered 6% QoQ (on op-lev gains), energy inflation pulled it down by 17% YoY to INR 1,110/MT. The company expects to sustain this margin in Q1FY23 on account of its low-cost fuel inventory and healthy cost pass-through.