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ICICI Securities retains 'buy' on UltraTech Cement which is set to be debt-free by H1FY23 -- here's how

The research firm expects UltraTech to continue to post industry leading growth and profitability over FY21-24E backed by low-cost brownfield expansions and increased cost efficiencies.

December 29, 2021 / 12:46 PM IST
 
 
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UltraTech Cement share traded in the green on December 28 quoting at Rs 7,445.45, up Rs 40.25 or 0.54 percent at 11:59 hours. It touched an intraday high of Rs 7,456.20 and an intraday low of Rs 7,350.

Research and broking firm ICICI Securities in its report has maintained "buy" on the stock with a target of Rs 8,850 per share.

The research firm expects UltraTech to continue to post industry-leading growth and profitability over FY21-24 backed by low-cost brownfield expansions and increased cost efficiencies. The company's diversified pan-India market mix, premium brand positioning, strong distribution and large presence in the non-trade segment allow it to weather current demand uncertainties much better than peers.

"Cost saving initiatives may result in benefits of Rs 100 per tonne by FY24 and RoCE or return on capital employed (post-tax) may expand over 400 basis points over FY22-24 to 17%. Dividend payout ratio has increased from 10% in FY20 to 20% in FY21 which may rise further as UltraTech is likely to generate Rs 20,000 crore free cash flow over FY21-24," the research firm added.

ICICI Securities has maintained "buy" on the stock with an unchanged target price of Rs 8,850 per share (15x Dec’23E EV/E). The stock is one of its top picks.

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Market share gains likely to continue

UltraTech's plan to add 20 mnte capacities (18% of domestic capacities) over the next two to three years in high-growth/utilisation markets of East, Central and North India would likely ensure faster ramp-up and higher volume growth. Given over 70% of these expansions are brownfield with an average capex of less than $60 per tonne, the research firm expects these assets to enjoy healthy RoCE of over 15% (versus 11.5% in FY20) led by better profitability.

The company also has large non-trade exposure (33%) and stands to benefit from a likely pickup in infrastructure spend and better urban housing demand, especially in Tier-II and Tier-III cities.

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UltraTech to be debt-free by H1FY23

The company is likely to generate over Rs 34,000 crore operating cash flow over FY21-24. This may allow the company to accelerate its growth via both organic/inorganic routes. Besides current 20 mnte expansion, UltraTech has scope to undertake additional 30 mnte low-cost brownfield expansion. Historically, acquisitions have been integral to the company's growth story with the firm enjoying a strong track record in turning around acquisitions.

The company is expected to be debt-free by the first half of FY23. Meanwhile, the dividend payout ratio has increased from 10% in FY20 to 20% in FY21 which may rise further (up to 25% as per current dividend payout policy) as the firm is likely to generate a strong free cash flow of Rs 20,000 crore over FY21-24.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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first published: Dec 29, 2021 12:46 pm
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