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Ultratech Cement Analysis: A Good Investment Option?

Created on 31 May 2024

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Updated on 06 Jun 2024

Ultratech Cement Analysis: A Good Investment Option?

Engineers and labourers create masterpieces in the form of houses, buildings, and even skyscrapers by adding one brick after another. As the population keeps growing, the demand and supply for the cement industry will keep on rising.

Today, we will be discussing one of the top players, if not the best one, in the nation. Ultratech Cement reported a 35% rise in its Y-o-Y and 27% quarter-wise profits.  

As the largest manufacturer of cement and ready-mix concrete in India, they're the go-to choice for massive infrastructure projects and individual home builders alike. With a popular marketing motto of “Desh Ka No.1 Cement", Ultratech Cement has proved its dominance worldwide.

Let’s discuss its financials, future prospects, and shortcomings from an investor’s perspective.

Cement Industry Overview

India's cement industry is a major force globally, ranking second only to China in terms of production. India boasts a total cement manufacturing capacity exceeding 545 Million Tonnes Per Annum (MTPA). As for production, India’s cement consumption & production touched approx 374.55 million tonnes in FY23, portraying a growth rate of 6.83% year-on-year.

Cement Production & Consumption
Source: IBEF

The industry is expected to witness further growth, with projections estimating demand to reach 150-160 MTPA by 2025-28. This estimate, as per CRISIL ratings, is due to the booming infrastructure and housing sectors.

The surge that the cement industry is witnessing could be majorly contributed to the government's commitment to building a modern and well-connected nation.  

Two key initiatives are acting as major catalysts:

a. Pradhan Mantri Awas Yojana (PMAY):  

This ambitious program, also known as "Housing for All," aims to provide affordable housing to millions of Indians. Every house built under PMAY translates to increased demand for cement, creating a ripple effect throughout the industry.

Wish to know how to apply for the Pradhan Mantri Awas Yojana (PMAY Scheme)? Read this detailed article to #KnowItAll.

b. PM Gati Shakti National Master Plan:  

This visionary plan goes beyond just housing. It focuses on the synchronised development of various transport networks – high-speed rail, modern highways, and efficient waterways. These projects require massive quantities of cement for roads, bridges, and stations, propelling the cement industry forward.

Also Read: A Thorough Guide to Pradhan Mantri Yojanas

c. National Infrastructure Pipeline (NIP):

NIP is a massive program outlining social and economic infrastructure projects for a five-year period. Launched in 2019, the initial NIP aimed to invest a staggering ₹102 lakh crore (over $1.5 trillion). This program will lead to increased job creation, improved way of living, and inclusive growth.   

Challenges and Future Considerations

Amidst all the requirements, cement’s demand for rural housing tops the list. This demand is bound to increase with the rise in population and living standards.

Cement Demand
Source: IBEF

Despite a good growth rate, the nation's cement sector has certain areas which need more improvement and consideration. Some of them are:

a. Environmental Impact:

Cement production is energy-intensive and traditionally relies on coal, raising concerns about environmental impact. The industry is exploring ways to reduce carbon emissions and adopt more sustainable practices.

Take Ultratech Cement, for example. As of 2023, the cement giant has reduced 12% of net specific carbon emissions, and green energy sources met 19.27% of electrical consumption.

b. Logistics and Transportation:

The regional nature of cement due to transportation costs necessitates efficient logistics networks to ensure smooth supply across the country.

c. Technological Advancements:

Embracing new technologies, such as waste heat recovery and alternative fuel sources, can enhance efficiency and reduce costs for cement manufacturers.

Overall, the Indian cement industry is a crucial pillar of the nation's infrastructure development. With its massive production capacity, strategic location of plants, and focus on meeting the demands of a growing nation, the industry is poised for continued growth in the coming years.

The Indian cement industry is a competitive landscape. The private sector dominates the industry, accounting for nearly 98% of the total capacity, with the remaining 2% under public sector control.

However, the top 20 cement companies hold a significant share, contributing nearly 70% of the total production. Ultratech Cement is a prime example, being the largest producer in India.

About Ultratech Cement & Peer Comparison

UltraTech Cement isn't just a cement company; it's a powerhouse for building solutions. UltraTech boasts the largest cement manufacturing capacity in India, churning out over 152 million tonnes per year. That's enough cement to build entire cityscapes! 😲

UltraTech doesn't stop at cement, though. They offer a whole range of building products, such as grey cement, RMC, and white cement, in India. In addition to boasting the position of being one of the leading cement producers globally, UltraTech also runs a vast network of stores.

Ultratech Cement’s vast network spans across India, with a presence in UAE, Bahrain, and Sri Lanka as well. It has over 1 lakh channel partners and a whopping 2900+ UltraTech Building Solutions (UBS) stores, ensuring consumers can find UltraTech products as per requirement.

The best part about these UBS stores is that they are like one-stop shops offering expert advice, a wide range of building materials, and even construction services.

In a move that strengthens their grip on the Indian cement market,  Ultratech Cement announced the acquisition of a grinding unit in Parli, Maharashtra from India Cements for ₹315 crore.  This acquisition, finalised on 20 April 2024, is more than just adding another factory to their portfolio. It will provide a good source to Ultratech as the grinding unit in Pune has the capacity of 1.1 MTPA.

Peer Comparison

The other cement companies that are giving strong competition to Ultratech also contribute majorly towards fulfilling the demand.

Top cement producers

Amidst all the competitors, Ultratech Cement stands tall. Whether it is about production capacity, market share, or product portfolio, Ultratech is one step ahead of its competitors, including Acc Ltd., Shree Cement Ltd., and Ambuja Cement.

Ultratech Cement's Financials

With a market capitalisation of ₹2.8 lakh crore, Ultratech Cement portrays a whopping 21.05% sales growth. The company also has a good cash flow management; CFO/PAT stands at 1.74.

Ultratech Cement Ltd. Share Price Today, Market Cap, Price Chart, Balance Sheet
Source: Finology Ticker

Ultratech Cement achieved a remarkable feat by producing, delivering, and selling 100 million tons of cement in FY23. That's a lot of cement! Their factories were running efficiently, using 95% of their capacity in the last quarter (Q4) and 84% for the whole year (FY23). This shows they're making good use of their resources.

Source: Ultratech Cement's Annual & Quarterly Reports

In terms of the stock market, it has generated a CAGR return of 27.4% in 1 year and around 16% in the 5-year gap. Ultratech Cement's latest results, announced on April 2024, paint a positive picture for the company:

a. Sales: Ultratech Cement's sales grew by 19% in the last quarter (Q4) compared to the same period last year. For the entire year (FY23), sales grew by an impressive 21%.

b. Profits: Profits before taxes were a bit higher in Q4 compared to last year. However, for the whole year (FY23), profits before taxes were slightly lower than the previous year. It's important to note that the previous year might have included some one-time benefits that aren't happening this year.

c. Profit After Tax (PAT): In Q4, profit after tax was higher than last year. However, for the entire year (FY23), it was slightly lower than the previous year (again, considering possible one-time benefits in the prior year).

The company's directors decided to give out a dividend to shareholders. This dividend is ₹38 per share, which is 380% of the face value (original value) of a share (₹10).

This means shareholders will get a total of ₹1097.01 crore distributed among them. It's important to note that the government might take a tax cut from this dividend before you receive it.

Curious to get an even better understanding of this cement industry’s players? Then check out this detailed report from Finology Recipe.

The Bottom Line

With a foundation as strong as Ultratech Cement, it's no wonder they're building the future of India, brick by cement brick. Their impressive Q4 results and analyst confidence suggest they're not slowing down anytime soon.

However every company, even the ones as big as Ultratech Cement requires constant watch when it comes to investment. Stock market is fluctuating all the time and one dip could prove lethal for your portfolio.  

So, make sure to research the company as per your financial goals and capital and then make a sound decision.

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.

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A book-lover who adores everything fictional, Preeti has undertaken the life mission of tasting every flavour available in the pantry. A science student with a Master's in Mass Communication, she now wishes to conquer the Finance world as a writer. With the power invested by the randomly chosen music, she is here to make Finance fun for you.

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