Ultratech Cement shares rise on Rs 13,000-crore capex announcement; should you buy?

Shares of UltraTech Cement edged higher on October 30, two days after the company announced a fresh investment of Rs 13,000 crore to add production capacity in the third phase of the growth. With this investment, the cement maker aims to increase its total to 182 million tonnes per annum (mpta) after completion.

The board of the Aditya Birla Group flagship firm “approved the 3rd phase of growth with an investment of Rs 13,000 crore towards increasing the capacity by another 21.9 mpta with a mix of brownfield and greenfield projects,” Ultratech Cement said in a statement. The company has an existing capacity of 132.45 mpta of domestic grey cement.

This increase in capacity will be achieved by setting up four greenfield and four brownfield plants along with four greenfield bulk terminals. Greenfield development is any kind of construction or development in previously undeveloped areas. In contrast, brownfield project involves development on sites previously used for industrial or commercial purposes.

Follow our market blog to catch all the live action

“Commercial production from these new capacities is expected to go on stream in a phased manner from FY26 onwards and will catapult the company’s cement capacity to 187 mpta globally,” the company said.

At 9:33 am, Ultratech Cement shares were trading marginally higher amid market weakness at Rs 8,239.00 on the National Stock Exchange (NSE).

Expansion plan

The announcement comes nearly three months after chairman Kumar Mangalam Birla said UltraTech Cement will work towards achieving a production capacity of 200 mtpa. The company informed analysts earlier in October that it has nearly stitched up its next expansion plan and will present it to the board for approval, with the intention of revealing it by December.

With this latest phase of expansion, the Aditya Birla Group company will establish a 60 million tonne (mt) lead over Adani Cement’s envisaged capacities. Despite the significant ongoing expansion programme, analysts at Centrum Broking expect the company to be debt-free in FY24.

Brokerage firm InCred has an ‘Add’ rating on Ultratech Cement stock with a target price of Rs 9,500. Analysts believe that the capex announcement is in line with the company’s long-term target of reaching 200 mtpa capacity before 2030.

Q2 update

Earlier this month, UltraTech Cement reported a 69.5 percent on-year rise in second quarter net profit at Rs 1,282 crore, for the financial year 2023-24 (FY24). Its revenue also grew 15.3 percent to Rs 16,012 crore. The company also posted a robust volume growth of 16 percent. Analysts expect the cement maker’s earnings before interest, taxes, depreciation, and amortization (EBITDA)/tonne to improve further in the coming quarters.

Also Read | UltraTech to invest Rs 13,000 cr to add production capacity by 21.9 MTPA; to cater future growth

Should you buy?

Axis Securities has Ultratech Cement stock as its top pick of the week. According to the brokerage report, company’s organic capacity expansion plan is progressing well. Its total grinding capacity will increase to 165 mtpa in phases over FY25E-FY26E, thereby aiding in its volume growth.

Ultratech’s top-line and margins are expected to enhance on account of its superior positioning in most of the markets as it is the largest producer of cement in India. Axis Securities has a ‘buy’ call on the stock with a target price of Rs 9,030 apiece.

Elara Securities reiterated its ‘Accumulate’ call on the stock after healthy Q2 earnings with an unchanged target price of Rs 9,098. However, considering a higher-than-expected operating cost in Q2 FY24, the domestic brokerage cut EBITDA estimate by 3-4 percent FY24, FY25 and FY26.

Meanwhile, Centrum Broking maintained an ‘Add’ rating on the stock with a revised target price of Rs 9,564 per share, up from Rs 9,340 earlier,” it said.

In the previous session, Ultratech Cement shares closed half a percent higher at Rs 8,210.65 on the National Stock Exchange (NSE). So far this year, the stock has rallied around 17 percent.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.