Sharekhan Places “Buy” Call On UltraTech Cement, Sets Target At Rs 8500

Sharekhan has placed a "buy" call on the stock of Ultratech Cement with a price target of Rs 8500 on the stock.

Power and fuel costs easing, says Sharekhan

International coal prices remained low (down 8.5%) during Q3FY2023 till date compared to the average in Q2FY2023. According to Sharekhan, further, domestic pet coke prices for December 2022 declined by 6% m-o-m post consecutive hikes seen in October 2022 (up 15.4% m-o-m) and November 2022 (up 4.6% m-o-m). "On the freight costs, average retail diesel prices across metros for October-November 2022 have stayed flat compared to Q2FY2023 (down 0.7% compared to Q3FY2022). UltraTech is expected to benefit from the expected decline in power and fuel costs partially during Q3FY2023 and fully during Q4FY2023," the brokerage has said.

Cement grinding units commissioned

According to Sharekhan, in December 2022, the company commissioned 5.5mtpa grinding units (1.8mtpa greenfield at Dhule, Maharashtra, 1.8mtpa brownfield at Dhar, M.P. and 1.9mtpa greenfield at Pali, Rajasthan), taking its total cement manufacturing capacity in India to 121.35mtpa. Further, it commenced production of 4LMT wall care putty plant at Rajasthan during November 2022, taking its total wall care putty capacity to 13LMT.

Healthy Cement demand

According to Sharekhan, UltraTech is expected to benefit from healthy cement demand over the long term, driven by its aggressive capacity expansion plans. "Demand is expected to be strong from segments such as infrastructure, rural housing, and urban housing. Further, the recent easing in pet coke/coal prices and flat diesel prices provides a key tailwind to improve upon operating margins from Q3FY2023, although the full benefit of easing power and fuel costs is likely to reflect in Q4FY2023 earnings. We continue to maintain our Buy rating on the stock with a revised price target (PT) of Rs. 8,500, rolling forward our valuation multiple to September 2024 earnings and considering its long-term growth potential and reasonable valuation," the brokerage has said.

 

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