Diversification Play; Sharp focus on Cement Stays, Retain BUY
▪ UTCEM allocates Rs18bn (~2% of capital allocation) in the building material value chain by investing in wire and cable business
▪ Sharp focus on cement stays with target to achieve 209mnt domestic cement capacity by FY27 implying ~27% of the industry capacity
▪ EBITDA estimates retained for FY25E/FY26E/FY27E; expect new stream to contribute from FY28, Maintain BUY with unchanged TP of Rs13,137
UTCEM allocates Rs18bn to enter wires and cable business: UTCEM has received board approval to invest Rs18bn in the wires and cable business through its building product division. The investment is in line with the UTCEM’s strategy to strengthen its position as a comprehensive building solutions provider. The investment will be in the next 2 years. UTCEM will expand its presence in the construction value chain through the foray in the cables and wires segment.
Entry in the new business stream through green field expansion: UTCEM intends to enter the W & C business with investment in the green field project (plant) at Jhagadia, near Bharuch in Gujarat with a total capacity of 3.5/4.0 mn kms. The key product categories will be Wires and various cable categories. The plant is expected to be operational by Q3FY27.
Expect to tap pan-India footprint; maintain industry margins: UTCEM plans to leverage the existing channel network to tap pan-India presence in the wire and cable network. The initial revenue focus will be 60:40 for the wire & cable segment. UTCEM indicated it will maintain the industry EBITDA margins (~10-11%) with a return ratio profile of upwards of 20% (~25%).
Cement focus continues to sharpen: UTCEM’s current cement capacity (FY25- end) is expected to be 182.8mnt and it intends to expand its domestic reach to ~209mnt by FY27. The growth pace of the company is ahead of the industry growth in adding capacities and UTCEM will be ~27% of the total industry capacity in FY27.
Maintain earnings estimates, Retain BUY rating: We feel UTCEM’s entry in the new business of W & C is to extend the building material value chain by offering one-stop solution. The initial investment of Rs18bn spread over next 2 years is a diversification of capital allocation but remains very small compared to its core cement exposure at ~2%. We retain our EBITDA estimates for FY25e/FY263/FY27e as the new business stream will meaningfully contribute only from FY28e. Hence, we continue to assign 17x EV/EBITDA valuation to arrive at an unchanged TP of Rs 13,137. Maintain BUY.
Ultratech Cement Company Update 1 Mar25 – Research
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