UltraTech Cement extends gain post Q3 results; stock hits over 7-month high

Shares of UltraTech Cement climbed 2 per cent to Rs 4,753 on the BSE on Monday in an otherwise weak market as most of the analysts maintained ‘buy’ rating on the stock, citing improving demand scenario which would lead to sustained volume growth for the company.

The stock was trading higher for the third straight day and at its highest level since June 4, 2019.

UltraTech management said the signs of revival were visible in some markets during the latter part of October-December quarter (Q3FY20). This, together with the Government's firm commitment to revive the economy and the thrust on infrastructure spending, augur well for the growth of cement demand.

The company, with its presence across all the zones in the country, is the best positioned to take advantage of the revival in cement demand, despite the anomalies that may get created in demand patterns in some parts of the country due to extraneous reasons, the company said.

UltraTech’s consolidated net sales slipped 1 per cent year-on-year (YoY) to Rs 10,176 crore in Q3FY20, due to lower-than-expected sales volume. Sales volume declined 4 per cent YoY to 20 million tonne, led by muted demand and slower ramp-up of Century Cement’s plants. However, realization grew 4 per cent YoY to Rs 4,991 per tonne, driven by higher YoY prices in most markets and 40 per cent YoY growth in premium products volume.

“Continued capacity addition, ramp-up of Century’s plants and improving demand scenario would sustain volume growth. Further, healthy realization with uptick in cement prices and rebranding of Century Cement into UltraTech along with focus on cost optimization would improve margin. Management’s move to not buy Emami Cement may end stock overhang,” analysts at Elara Capital said in quarterly update. The brokerage firm reiterates ‘accumulate’ rating on the stock with target price of Rs 5,268 per share.

UltraTech Cement is stabilizing costs and distribution of recently acquired Century and Nathdwara cement. Analysts at HDFC Securities believe these, along with fuel cost tailwinds nad demand recovery drive, will bolster the company’s leadership position across regions, and add to its production/ sales efficiencies.

The brokerage firm reiterates 'BUY' on UltraTech with a higher target price of Rs 5,600 (15x its Sep-21E EBITDA, implying EV of USD 220/MT). The company deserves premium valuations for its capacity & cost leadership and balance sheet discipline, the brokerage said.

“UltraTech’s market mix has improved post acquisition, with north/central India (both have better utilization outlook) contributing around 45 per cent of volumes; share of weaker regions (i.e. south/east) has declined. Moreover, the company’s clarification that it has not bid for Emami Cement should remove a key overhang on the stock,” Motilal Oswal Securities said in results update. The brokerage firm maintains ‘buy’ rating on the stock with target price of Rs 5,440 per share.


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