Citi, Nuvama up UltraTech's target prices after Q1 earnings; stock gains 2%

Ultratech Cement's management anticipates industry growth of 7-8 percent for FY25, with its own growth expected to be in the double digits.

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UltraTech Cement stock gained over 2 percent as the stock got a thumbs up from brokerages with bullish calls and raised target prices after the first quarter (Q1FY25) earnings.

The cement maker's net profit rose marginally to Rs 1,695 crore and revenue grew 2 percent on-year to Rs 18,069, missing street estimates. However, the EBITDA exceeded estimates, driven by higher volumes and RMC sales. UltraTech's guidance on cost reduction and progress in completing capex have given confidence of further upside in the stock.

Citi has issued a Buy call on UltraTech Cement, raising the target to Rs 13,000 per share. The optimistic outlook is based on higher volumes, lower costs, and increased sales of ready-mix concrete (RMC).

According to analysts at Citi, the key highlights from management commentary during the post-earnings call is the expectation that costs will decrease by over Rs 300 per tonne over the next three years, an improvement over the previously guided Rs 200-300 per tonne figure.

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UltraTech's first quarter was impacted by higher marketing expenditure related to the T20 cricket World Cup. Additionally, July prices were approximately 1.5 percent lower than the first-quarter average, with any potential price hikes likely to occur only after the monsoon season.

The company anticipates industry growth of 7-8 percent for FY25, with its own growth expected to be in the double digits.

Emkay Global also maintained a 'Buy' rating, adding that India's largest cement manufacturer is on track to achieve 200 mt grey cement capacity by FY27E (~11 percent CAGR) at a capex of less than $75/tonne.

This will help the company to achieve industry-leading volume growth, despite its large scale and the lower capex/tonne will boost return ratios, it said.

Also Read | UltraTech Q1 Results: Net profit flat on-year at Rs 1,695 crore, misses estimates; shares fall

Besides, UltraTech's management is targeting sustainable cost reduction to de-risk its business. Given its strong growth/capex plans, pan-India presence, and robust balance sheet, analysts at Emkay revised their June-25E target price upwards to Rs 12,800 per share after the quarterly rollover.

While the brokerage is upbeat on UltraTech's industry-leading volume growth during the April-June quarter, the rising net debt was a concern, it said.

Meanwhile, factoring in the capex aimed to help UltraTech outperform industry growth, Nuvama increased the target EV/EBITDA to 18x (from 17x). The brokerage maintained a 'Hold’ rating on the stock, while revising the target price upwards to Rs 11,800 from Rs 10,024 earlier.

Also Read | Price hikes possible after monsoon in second half of 2024: UltraTech Cement

"While on-track completion of capex plans and efficiency focus is heartening, the weak sector fundamentals and risk of earnings downgrade in FY25 are issues of concern," Nuvama said, adding that material increase in costs or sharp decrease in cement prices are key concerns for the company.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.