In a noteworthy turnaround, Ultratech Cement has garnered favorable investor sentiment, leading to several brokerages upgrading their ratings to ‘buy’ over the past month. This shift in outlook comes after a series of rating cuts over the last year, and it follows Ultratech Cement’s robust performance in Q2FY24, with significant increases in revenue, profit, and EBITDA.
The improved sentiment toward Ultratech Cement’s stock can be attributed to a combination of factors, including the company’s expansion plans, focus on green energy, successful price hikes, and a positive long-term demand outlook.
Investors have responded to this shift in sentiment by driving Ultratech Cement’s share price up by over 7 percent in the last month to Rs 8,682.
Capacity Expansion and Green Energy Focus Boost Margins
Ultratech Cement’s ongoing capacity expansion plans have been a significant driver of this optimism. Yes Securities highlighted that the company aims to increase its total cement capacity to 165 million tonnes per annum (MTPA) by FY25, with a projected capacity growth rate of 8 percent CAGR, surpassing the industry average of 5 percent.
Additionally, Ultratech’s emphasis on green energy, targeting a 60 percent share by FY26, has garnered investor attention. Yes Securities noted that the company’s plans to enhance its green energy share, including renewable and Waste Heat Recovery System (WHRS) capacities of 1.25 GW, are expected to contribute to long-term margins.
B&K Securities pointed out that after the phase 2 capital expenditure, the company’s capacity share in the industry will increase to 24 percent. This expansion is expected to be more profitable in the medium term due to enhanced efficiency, state incentives, and efforts to reduce lead distances.
Successful Price Hikes and Market Dominance
Price hikes have played a crucial role in Ultratech’s market position. The company remains confident about a strong demand environment in H2FY2024, with continued expectations of increased cement prices, up 5 percent compared to the Q2FY2024 average.
ICICI Securities indicated that price hikes across various regions in the cement industry are likely to persist, further boosting operational profitability growth. Ultratech Cement’s dominance in the industry enables it to command premium prices among its competitors, ensuring strong net selling realization (NSR) and profitability.
Favorable Stock Valuation and Growth Potential
Analysts are drawn to Ultratech Cement due to favorable valuations and future growth potential. Sharekhan maintained a ‘Buy’ rating on Ultratech stock with a target price of Rs 9,500, citing attractive EV/EBITDA multiples for FY2025E and FY2026E.
Yes Securities also reiterated an ‘Add’ rating with a target price of Rs 9,572, valuing the stock at 16x EV/EBITDA on FY26E, emphasizing its long-term growth prospects.
However, some analysts, like Geojit, remain cautious, pointing out that the current valuation is above the five-year average. They cautiously reiterated their ‘HOLD’ rating on the stock with a revised target price of Rs 8,900 based on 15x FY25E EV/EBITDA.
The collective positive sentiment among analysts regarding Ultratech Cement is underpinned by its strong financial performance, expansion plans, price hikes, and its leadership position in the industry.
