Icici Securities Sees Over 49% Upside Potential On This Chemical Stock

UltraTech Cement Ltd is a large capital company in the cement industry with a market capitalization of 163,931.84 Crores. The company’s board of directors has approved an increase in cement capacity of 22.6 million tons at a cost of Rs129 billion, which the company plans to complete in FY25. Based on the new CAPEX disclosed, ICICI Securities has maintained a buy call for UltraTech Cement shares with a price target of 8,500, representing upside potential of 49.71 percent from the last traded price of 5,677.60.

ICICI Securities said in a report that “UltraTech Cement’s (UTCEM) board of directors has approved a cement capacity expansion of 22.6 million (~17% of the projected FY23 India business base of 130.9 million) against a capital investment of ~Rs129bn (US$76/te) which the company expects to complete in FY25. The new round of capacity expansion will bring UTCEM’s total gray cement capacity in India to ~154 million from its current 114.6 million, representing 10.4% CAGR over the next three years With the said expansion, the industry has announced ~ 110 million capacity will be added over the next three years, with UTCEM alone adding 35% of that and nearly two-thirds of the additions by the top 4 group .”

The brokerage has claimed that “We believe this would lead to better industry consolidation and better pricing. In addition, based on historical trends, many of these capabilities may be subject to delays and the speed of execution will depend on the growth of the market. We believe that UTCEM, with its large pan-Indian diversified market presence, premium brand positioning, timely capacity creation, increased cost efficiency and strong balance sheet, is better placed to gain market share / improve margins in the medium term.We continue to appreciate UTCEM at 15x FY24E EV/E and maintain the BUY rating with a target price of Rs8,500/sh Main risk: lower demand/pricing and sharp cost escalations.”

ICICI Securities also said that many of its announced 110 million capacity expansions could be delayed for a variety of reasons (based on historical trends). For example, recent cost pressures could shrink the profitability of industry participants, especially for mid-sized and smaller companies in the near term, and the resulting cash flows available to capex could shrink. This may delay the implementation of the announced expansions.

The views and recommendations made above are those of individual analysts or brokerage firms, not Mint.

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