Buy This Large Cap Cement Stock For Robust Gains, Shares Surged 5.28% In 1 Week: KR Choksey

KRChoksey has recently published a report on UltraTech Cement Ltd., where the brokerage recommends buy the stock with an estimated target price of Rs 8,359 per share for 12 months investment period. If an investor buys the stock at the Current Market Price, the stock can give up to 16% returns on investments. UltraTech is the largest manufacturer of grey cement (121.25 mtpa capacity) in India and the third largest cement producer globally, excluding China. It has 22 integrated manufacturing units, 27 grinding units, 1 Clinker unit, 170+ RMC plants and 8 Bulk Packaging Terminals.

Stock Outlook

Ultratech Cement is a large-cap Cement stock having a market capitalization of Rs 2,08,913 crore. Ultratech Cement's current market price (CMP) on NSE stood at Rs 7,237.05 per share, which fell 0.51% as compared to the previous close. It recorded its 52-Week low on 17 June 2022 at Rs 5,157.05 & its 52 week high on 17 January 2022 at Rs 7,946, respectively. The shares in a week surged by 5.28%. Its shares in 1 and 3 months surged by 6.74% and 10.03%, respectively.  However, in past 1 year, it fell by 1.18%. It gave 69.24% positive returns in 3 years and 72.93% positive returns in 5 years, respectively.

Stable volume and improved realization to drive revenue growth

Ultratech management expects healthy demand across segments like road infrastructure, realty and metro projects in the long term and expects cement demand to grow at 8% CAGR over the next 5 years. Despite commodity price inflation, focus on cost control measures has helped Ultratech to exhibit resilient performance during last couple of quarters (Q2FY23/Q1FY23/Q4FY22). Robust cement demand coupled with recent price hikes taken by the company will help to drive revenue growth in coming quarters.

Fall in crude and other commodity prices to improve margin profile

For the last few quarters, Ultratech's margin faced downward pressure due to sharp rise in input costs like power, fuel and logistics costs. Nevertheless, compared to its peers, Ultratech managed the cost pressure quite well. With crude prices now correcting significantly from its peak along with correction in pet coke and coal prices, Ultratech is expected to improve its margin profile in the coming quarters.

Capacity expansion to drive future growth trajectory

Ultratech, with its pan-India presence and market leading position in the domestic cement industry has embarked on an aggressive capacity expansion plan to garner incremental market share as well as cater to the rising infrastructure demand in the country. The company has revised upwards its Phase I expansion plan of 19.5 mtpa to 19.9 mtpa. It already commissioned 3.2 mtpa in FY22 and 1.3 mtpa in Q2FY23. The rest 15.4 mtpa capacity will be commissioned in H2FY23. Under Phase II of the expansion plan, 22.6 mtpa capacity will be commissioned by FY26. The ground-work has already commenced for Phase II expansion of 22.6 mtpa capacity. Further, Ultratech aims to increase its capacity from 153 mtpa (to be reached in FY26) to 200 mtpa by FY30 through a mix of organic and inorganic expansion.

Buy for Rs 8,350 target price

At CMP of INR 7,230, the stock trades at 17.8x/14.2x its FY23E/FY24E EV/EBITDA. "We apply an EV/EBITDA multiple of 16.5x to FY24E EBITDA, which yields a target price of INR 8,359 per share, an upside of 15.6%. Accordingly, we recommend a ‘BUY' on the shares of Ultratech," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of KR Choksey. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.