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CLSA positive on Cement Major Ultratech Cement

Photo : BCCL

New Delhi: Ultratech Cement is on Brokerage’s radar as CLSA came up with a positive report. CLSA has maintained an outperform rating on the cement major with a target of Rs. 6657/share. CLSA expects an upside of 11% at 7365 from the current market price for the next 12 months. With 34% capacity expansion by FY25, Ultratech Cement is likely to grow faster than the industry.

The increase in WHRS capacity and higher cement/clinker ratio augur well for costs as well. Given capacity expansion, cost reduction initiatives, reducing debt and improving return Ultratech seems to be best placed in the sector.

Growth Triggers:

-ESG: marching towards steep targets

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Sustainability remained a key theme for the cement major. DJSI’s score has increased by 11 points to 79 and is now ranked 7th globally in the construction materials category. Green power usage increased by 17.6% with a target of 34% in FY24 and Carbon dioxide emission fell by 3% YoY. The cement/clinker ratio improved as well. These steps not only improve sustainability scores but also help in cost reduction.

-Capacity expansion provides visibility on medium-term growth

Ultratech is on track to expand its India capacity from 115 mt to 154 mt by FY25 thereby reinforcing capacity leadership with a share of 20%.

-Return ratios should improve going ahead

FY22 debt fell to Rs. 49 billion from Rs. 76 billion in FY21 driven by FCF generation of Rs. 25 billion. CLSA forecasts net debt to fall to Rs. 13 bn by FY25. Ultratech Cements FY22 ROCE was largely flat YoY at 12% and the expectation is for it to fall to 10% in FY23 on low profitability. Over the medium term, as the new expansion projects get commissioned and utilization picks up, ROCE is likely to improve as well.

-Major positives

With large capacity expansions, cost reduction initiatives, declining debt and improving return ratios Ultratech will be up for all major positives in comparison to its peers.

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