What UltraTech’s Rs 12,886 cr capex plan means for cement shares

NEW DELHI: UltraTech Cement’s determination to speculate Rs 12,886 crore to ramp up its capability by FY25 might solely add to fears of margin erosion within the sector that’s marred by weak demand, low pricing energy, excessive gasoline price and the entry of a brand new aggressive participant Adani Group.

Analysts stated whereas the capex announcement itself will not be a shock, it’s a few months forward of its expectation. With different gamers additionally seeking to ramp up capability, close to time period stress on cement shares is all however probably, they stated.

“Whereas the low capex price of $74 per tonne (towards the perceived substitute price of over $100-120 per tonne with current inflation) is a optimistic for UltraTech, in instances of hassle, it may suggest a low ask charge for Ebitda margins. With probabilities of friends additionally becoming a member of the capex drive, we preserve a cautious sector stance,”

stated whereas suggesting a goal of Rs 5,996 on the inventory.

UltraTech Cement has introduced plans so as to add 22.6 mpta of capability which might be practically 17 per cent of its capability put up completion of tasks on-hand by FY25. The cement maker, analysts stated, had already hinted at plans firming up in direction of natural expansions and subsequently the brand new capex announcement doesn’t come as a significant shock.

The Avenue might view the growth as UltraTech’s transfer to retain its management after it misplaced out on Holcim’s India property to Adani Group. It might set off expectation of a race in direction of sustaining or growing capability share on condition that a number of friends have robust stability sheets and likewise the intent so as to add important capability, analysts warned.

“Below regular circumstances, the capex announcement would have been impartial or optimistic for UltraTech– because it endeavours to keep up market share with constant quantity development visibility. However in instances of sector headwinds, the capex is more likely to damage the sentiment additional. Numero uno,

is doing what’s finest for all its stakeholders from a medium to long-term viewpoint,” Edelweiss stated.

famous that even Gautam Adani intends to double the capacities of and over the following 5 years as soon as the acquisition is accomplished.

Given the excessive price of acquisition at $180 per tonne of Holcim’s stake in ACC and Ambuja Cements, it is sensible for the Adani group to extend capacities via brownfield growth, which has a comparatively decrease capital price, it stated.

Amongst different gamers,

had earlier stated it is going to double capability over the following five-to-six years. However it has not been very aggressive in inserting orders over the past two years. Few different gamers like , , JSW Cement, and Dalmia Bharat have additionally indicated their capability growth plans, Motilal stated.

With the capability addition plans, stated CLSA, UltraTech has strengthened management via ROCE-accretive growth. It finds UltraTech higher positioned in in any other case tough macros and has a goal of Rs 7,640 on the inventory.

To get some perspective, 10 cement firms, accounting for 60 per cent of sector general capability, reported a 20 per cent YoY decline in Ebitda within the March quarter, owing to greater enter price inflation. In FY22, free money technology of 10 cement firms that Emkay International tracks declined 67 per cent YoY to Rs 6,200 crore after working capital blockage of Rs 2,400 crore and a 57 per cent YoY enhance in capex to Rs 15,200 crore.

Emkay expects cement shares to be range-bound given the shortage of triggers within the close to time period. Any correction in enter costs will probably be a key factor to be careful for, it stated.

“Whereas we aren’t altering our long-term optimistic view on the sector, we count on cement shares to underperform within the near-term, given the sustained enhance in power prices, your complete impression of which must be felt in 1HFY23; the near-term weak spot in demand and the partial rollback of the worth hikes in Could,” Motilal Oswal stated.

This brokerage has a goal of Rs 7,825 on the UltraTech inventory. Edelweiss finds it price Rs 5,996. Emkay prefers Ultratech and Shree Cement in large-caps, Birla Corp in mid-caps and Sagar Cement in small-caps.

(Disclaimer: Suggestions, solutions, views, and opinions given by the specialists are their very own. These don’t characterize the views of Financial Instances)

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