Analysts, however, said that the announcement of the investment in itself is not surprising, as it is a few months ahead of its expectations. Because other players also want to increase capacity, short-term cement supply pressures are unlikely, they said.
“While the low investment cost of $ 74 per tonne (as opposed to the estimated replacement cost of over $ 100-120 per tonne with recent inflation) is positive for UltraTech, it could mean a low sales rate for Ebitda’s margin in difficult times. peers participate in the investment drive, we maintain a cautious stance in the sector, ”
said while proposing a target of 5,996 rupees on the stock.
UltraTech Cement has announced plans to add 22.6 mpta of capacity, which would be almost 17 percent of its capacity after the completion of the projects available for FY25. The cement producer, experts said, had already hinted at plans to step up towards organic expansion, so the new investment announcement is not particularly surprising.
The Street could view the expansion as a step by UltraTech to maintain its lead after losing Holcim’s assets in India to Adani Group. This could trigger expectations of a race to maintain or increase capacity sharing, given that some peers have a strong balance sheet and also plans to add significant capacity, experts warned.
Under normal circumstances, the investment announcement would have been neutral or positive for UltraTech – as it seeks to maintain market share with constant volume visibility.
is doing what is best for all its stakeholders from a medium to long-term perspective, “said Edelweiss.
pointed out that even Gautam Adani intends to double capacity and in the next five years when the acquisition is complete.
Given the high purchase price of $ 180 per tonne of Holcim’s stake in ACC and Ambuja Cements, it makes sense for the Adani Group to increase capacity with the expansion of Brownfield, which has a relatively lower cost of capital, it said.
Among other players,
had previously said it will double capacity over the next five to six years. But it has not been very aggressive in orders over the past two years. Few other players like,, JSW Cement and Dalmia Bharat have also indicated plans for capacity expansion, Motilal said.
With capacity building plans, CLSA said, UltraTech has strengthened its leadership with ROCE-enhancing expansion. It finds UltraTech better in an otherwise difficult macro and has a target of Rs 7,640 per share.
To get a brief overview, 10 cement companies, which account for 60 percent of the total capacity of the economy, announced a 20 percent reduction in ebitda in the March quarter, due to higher inflation in input costs. At FY22, the free cash production of 10 cement companies, which Emkay Global monitors, fell by 67 percent year-on-year to 6,200 million rupees after a turnover investment of 2,400 million rupees and a 57 percent increase in investment between years to 15,200 million rupees.
Emkay expects cement inventory to be limited given the shortage of igniters in the near future. Any correction in input prices will be a key factor to beware of, he said.
“While we are not changing our positive attitude towards the industry in the long run, we anticipate that cement stocks will perform poorly in the near future, given the sustained increase in energy costs, all of which should be reflected in 1HFY23; weakness in demand during the period and partly the reversal of price increases in May, “said Motilal Oswal.
This brokerage has a target of Rs 7,825 on the UltraTech shares. Edelweiss considers it worth Rs 5,996. Emkay prefers Ultratech and Shree Cement in large caps, Birla Corp in middle caps and Sagar Cement in small caps.
(Disclaimer: Advice, suggestions, opinions and opinions given by experts are their own. This does not represent the views of the Economic Times)
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