380% Dividend In 2023: Cement Stock Crosses Rs 10,000 Mark For The First Time; More Steam To Buy?

The largest cement company in India in terms of market share, Ultratech Cement crossed the Rs 10,000 price level for the first time on December 13th, taking its overall upside to as much as 52% from its 1-year lows. The performance comes at the time the cement giant announced its plan to increase its overall share of green energy to 85% by 2030. Ultratech is already on the path to enhancing its footprint by the acquisition of cement from Kesoram Industries.

On Wednesday, Ultratech touched a new 52-week high of Rs 10,040 apiece on BSE. However, the stock witnessed profit-booking after it attained this level and ended at Rs 9,739.35 apiece, down by 1.26% on BSE.

Year-to-date, Ultratech stock has gained by nearly 39% on BSE.

Ultratech is currently the largest cement company in terms of market share and faces tough competition from Adani Group who last year acquired its rival companies Ambuja Cements and ACC.

A PTI report on Wednesday said that Ultratech announced that it plans to increase the overall share of green energy in its total energy mix to 85% by 2030. As an interim target for its sustainability objectives and targets, the AV Birla Group company plans to increase its total green energy share from its current 22% to 60% by FY26.

At present, the company has about 691 MW of green energy capacity. Of the total, 262 MW of WHRS (waste heat recovery system) installed capacity and 429 MW of contracted renewable energy. These reflect 22% of the company's current energy requirements.

Ultratech's growth prospects are seen positive amidst its mergers and acquisition move. The company will acquire the cement business of Kesoram which consists of 2 integrated cement units at Sedam (Karnataka) and Basantnagar (Telangana) with a total capacity of 10.75 mtpa. Out of this total capacity, 8.50 mtpa is clinker-backed and 2.25 mtpa is surplus grinding capacity. The cement business also has a 0.66 mtpa packing plant in Solapur, Maharashtra.

Under Kesoram's demerger scheme, UltraTech will issue 1 equity share of the face value of Rs.10/- each for every 52 equity shares of Kesoram of face value Rs. 10/- each as recommended by the valuers and accepted by the Board. Meanwhile, 59,74,301 new equity shares of the Company will be issued to the shareholders of Kesoram as on the record date as defined in the Scheme. This will increase UltraTech's equity capital to Rs. 294.66 crores consisting of 29.47 crore equity shares of Rs. 10/- each.

According to Ultratech, Kesoram's cement business will them with the opportunity to extend its footprint in the highly fragmented, competitive, and fast growing Western and Southern markets in the country. It will help enhance UltraTech's geographic reach in Southern markets such as Telangana where UltraTech currently does not have any cement manufacturing plant. The operations will be bolstered by economies of scale resulting from synergies in procurement, logistics and fixed costs.

The transaction is expected to be consummated within 9-12 months subject to the above regulatory approvals.

The share price of Ultratech Cement has the potential for more upside. Brokerages have set target prices in the range of Rs 10,100 to Rs 10,850.

According to Axis Securities, at present UTCL has a total Cement manufacturing capacity of 20.5 mtpa with an 11% industry capacity share in the South region. With the acquisition of KIL's Cement assets of 10.75 mtpa and after completion of 2nd and 3rd phase of expansion (addition of 6.3 mtpa and 8.7 mtpa) the total capacity will increase to 46.2 mtpa by FY27 and will take its capacity market share to over 20% in the South region. This will enhance the UTCL overall market share moving ahead.

Overall, on the valuation and outlook, the brokerage's note said, "With better demand, improved realization , increasing market share and cost optimization initiatives,we expect the company to deliver Revenue/EBITDA/APAT growth of 12%/21%/30/% CAGR over FY23-FY26E on the back of robust volume growth CAGR of 11% over the same period. Currently, the stock is trading at 15x and 13x FY25E and FY26E EPS."

That being said, Axis Securities rolled out its estimates to FY26 and value the company at 16x FY26E EV/EBITDA to arrive at the TP of Rs 10850/share.

Further, Antique Stock Broking has set a target price of Rs 10,500 with buy recommendation on Ultratech.

Finally, brokerage Motilal Oswal has set a target price of Rs 10,100 on Ultratech with buy call.

It also needs to be noted that apart from giving double-digit returns. Ultratech has also rewarded shareholders with hefty dividend this year. The company has paid dividends up to 380% amounting to Rs 38 per share to investors in 2023 so far. Currently, its dividend yield is at 0.39%.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.