Ultratech's Q4 Strength Sparks Investor Interest: Buy, Sell, or Hold?

Ultratech Cement posted strong revenue and profit in Q4, driven by double-digit volume growth and lower costs. However, declining prices were a concern due to erratic cement pricing across the country. The management expects subdued demand this fiscal year but does not anticipate a prolonged slowdown.

The company reported strong financials, with consolidated net profit at ₹2258 crore, up 36% YoY and 27% QoQ, and consolidated sales at ₹20,419 crore, up 9.4% YoY and 22% QoQ. EBITDA stood at ₹4,250 crore, up 25% QoQ and 23% YoY, with consolidated net debt at ₹2,779 crore as of March 31, 2024.

Domestic grey cement sales grew by 11% YoY and 31% sequentially to 33.22 million tonnes, while smaller segments such as white cement and ready mix also saw growth; though cement exports dipped slightly.

After the results, most brokerages maintained their current ratings. Dolat Capital upgraded the stock to “Buy” from “Accumulate”, setting a revised target price of ₹11,485 per share. Nuvama maintained a “Hold” rating with a target price of ₹10,024 per share. Jefferies India retained its “Buy” rating but marginally lowered the target price to ₹11,500 from ₹11,560 per share.

Here are what brokerages say about Ultratech stocks:

Nomura: “Ultratech aims to achieve a cement capacity of 200MT or more, with a projected growth to 183MT (excluding Kesoram) by FY27, representing a 9% CAGR from FY24-27. Phase 3 expansion plans include adding 22MT capacity at USD72/t with an estimated IRR of 15%. The company awaits regulatory approvals for the acquisition of Kesoram, which is expected to be completed by March 2025, taking Ultratech's capacity to over 190MT by FY27F. The management is confident about achieving the 200MT capacity organically. Despite recent price increases, lower consumption in the election quarter may lead to moderated prices, with a projected 1% sequential decline in blended realization. Volume moderation in the election quarter may result in 7% higher fixed costs in 1QFY25F, leading to an expected moderation in EBITDA/t to ₹1,080/t in 1QFY25F.”

Jefferies India: “Ultratech's performance in the fourth quarter surpassed expectations, with EBITDA growing by 24% YoY and 26% QoQ. This was despite weak prices being balanced out by slightly better volumes (+11% YoY), increased other operating income, and reduced overheads. The management emphasized targeted cost savings of ₹200-300 per ton in the medium term to drive profitability. We have adjusted our FY25 EBITDA estimate downward by 2%, but maintain our FY26 estimates. This adjustment is due to our revised expectation of flat price growth YoY (previously estimated at +1-2% YoY), anticipating margin expansion in FY25 as cost-saving initiatives from the second half of FY24 continue into FY25.”

Dolat Capital: “Ultretech's capacity is set to increase from 146.2/152.7 million tonnes per annum (mtpa) in FY24/Q1FY25 to 162.4/184.9 mtpa by FY25E/FY26E. With additions like 10.75 mtpa from Kesoram and 5.4 mtpa from overseas, the total consolidated cement capacity will reach 199.6 mtpa by FY27E, supporting future growth. Healthy operating cash flow (averaging ₹144.6 billion/year over FY24-FY26E) and free cash flow (averaging ₹34.6 billion/year over FY24-FY26E) will lead to deleveraging. Ultratech, as the largest player in the Indian cement industry, has a significant advantage. Additionally, we anticipate issuing approximately 5.97 million new equity shares (2%) to Kesoram Industries' shareholders in FY26E.”