Motilal Oswal is bullish on UltraTech Cement has recommended buy rating on the stock with a target price of Rs 5050 in its research report dated November 27, 2019.
Motilal Oswal 's research report on UltraTech Cement
UltraTech Cement (UTCEM) has underperformed the Sensex by 10% over the past three months due to weak cement demand and the dismal performance of the acquired Century Cement assets in 2QFY20. In this note, we present (a) the premise for our expectation of an improvement in profitability of Century and (b) the case studies on the turnaround of the other two acquisitions – JPA and Binani. With limited capex needs going forward, strong FCF generation (~7% yield) will likely drive deleveraging and 550bps improvement in RoE over the next two years. Against this promising backdrop, we maintain our positive stance on UTCEM – our top pick in the sector.
The stock is not ascribing any value to its >20 MMTPA low-cost brownfield expansion wherein long-term growth visibility is good. We value UTCEM at 14x FY21E EV/EBITDA to arrive at a target price of INR5,050 (implied EV/t of USD185/t on FY21 capacity). Maintain Buy.
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