Motilal Oswal's research report on UltraTech Cement
Earnings for UTCEM as well as the Cement sector is expected to remain under pressure in 1HFY23 and lower than our earlier estimate due to: 1) sustained cost pressures (we expect a INR300-350/t increase in energy costs in 1HFY23), 2) recent decline in Cement prices, which came under pressure in Jun'22, 3) lower than our estimated growth in Cement demand in 1QFY23, and 4) tendency to increase capacities by different players (UTCEM and SRCM recently announced capacity expansions). Earnings recovery for UTCEM in FY21 and 1HY22 was driven by fixed cost controls as well as a better pricing scenario. Improvement in the pricing scenario in FY20/FY21 was led by lower industry clinker capacity additions over FY16-22 (a CAGR of 2.9% v/s 7.7% CAGR over FY10-16). Going forward, clinker capacity addition is estimated to be at 5% CAGR till FY25E, with higher capacities expected in Central and East India. This may put pressure on pricing power and profitability for the industry. Apart from the announced capacity additions, few other players may tend to announce new capacities. We understand through media articles that the Adani group, the new entrant (after the acquisition of Holcim's stake in ACC/ACEM gets completed) in the industry, aims at achieving a capacity of 140mtpa over the next five years (v/s its current capacity of 68mtpa).
The stock trades at 16.3x/13.6x FY23E/FY24E EV/EBITDA (v/s its 10-years' one-year average EV/EBITDA of 15x). We have revised our TP to INR6,450 per share (from INR7,825 earlier), based on 15x FY24E EV/EBITDA. We maintain our Buy rating on the stock.
At 15:03 hrs UltraTech Cement was quoting at Rs 5,612.40, down Rs 11.35, or 0.20 percent.
It has touched an intraday high of Rs 5,649.00 and an intraday low of Rs 5,551.00.
It was trading with volumes of 7,873 shares, compared to its thirty day average of 15,698 shares, a decrease of -49.85 percent.
In the previous trading session, the share closed up 0.90 percent or Rs 50.25 at Rs 5,623.75.
The share touched its 52-week high Rs 8,267.00 and 52-week low Rs 5,158.05 on 08 November, 2021 and 17 June, 2022, respectively.
Currently, it is trading 32.11 percent below its 52-week high and 8.81 percent above its 52-week low.Market capitalisation stands at Rs 162,013.63 crore.
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