Buy Ultratech Cement; target of Rs 5400: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Ultratech Cement

Ultratech (UTCEM) approved new capacity expansion of 12.8mtpa. It would incur total capital outlay of Rs54.8bn with attractive capex cost of USD58/t, significantly below standard cost of USD75-80/t. This expansion is over and above the ongoing expansion of 6.7mnt. Nearly 52% of its new capacity would come in East region, which is already facing sharp surge in supplies. Intense competition pushed margins to new lows of Rs850-900/t in the region. However, lower margins were compensated by strong volume growth. We believe that strong fundamentals of the region and near bottomed out margins augur well for the expansion with aided advantage of low capex cost and superior logistics. Rest of the expansion is dedicated in attractive markets of North and Central India. Ultratech (UTCEM) enjoys one of the best earnings quality in the cement sector, led by high trade share and efficient operations.

Outlook

We reiterate BUY on UTCEM with TP of Rs5,400, EV/EBITDA of 15x FY22e.

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