On Friday, Ultra Tech Cement Ltd (UTCEM:IN) maintained a Buy rating from a Citi analyst, with a price target set at INR 11,500.00. The company recently acquired a 22.8% stake in India Cements (ICL) at a rate of Rs267 per ICL share, which translates to an implied enterprise value per tonne (EV/t) of approximately $88. As of March 2024, the promoter's holding in India Cements was 28.4%.
The investment is seen as a strategic non-controlling financial stake that could pave the way for Ultra Tech Cement to acquire additional shares in ICL in the future. According to Citi's analysis, if Ultra Tech were to purchase the entirety of ICL at similar valuations, the acquisition could likely be funded through the company's internal accruals.
The analyst pointed out that despite the ongoing consolidation in the cement industry, pricing trends are expected to stay within a certain range in the medium term, as utilization rates are projected to remain below 80%. Companies that are well-positioned to meet demand growth and are working on their cost structures are viewed positively.
Ultra Tech Cement is recognized for its robust fundamentals, with an estimated compound annual growth rate (CAGR) of approximately 12% in volume through the fiscal years 2024 to 2027. Additionally, the company is expected to maintain resilience in earnings before interest, taxes, depreciation, and amortization (EBITDA) per tonne due to its cost management and visibility for growth.
Currently, the enterprise value per tonne (EV/t) for Ultra Tech Cement is $210. Based on Citi's estimates, the stock is trading at around 16.7 times the projected FY26 EV/EBITDA, with historical peaks around 19 times.
InvestingPro Insights
Ultra Tech Cement Ltd (UTCEM:IN) has been under the lens of investors, especially after its recent acquisition of a stake in India Cements, and the optimistic outlook from Citi analysts. The company's strategic moves and robust fundamentals have positioned it as a key player in the industry. Here are some insights from InvestingPro that could further inform investors about Ultra Tech Cement's market position and performance:
InvestingPro Data indicates that Ultra Tech Cement's gross profit margins have been impressive, highlighting the company's ability to manage cost of goods sold effectively. Additionally, the company has shown a significant return over the last week, signaling strong recent performance in the market. However, the Relative Strength Index (RSI) suggests that the stock is currently in overbought territory, which could point to a potential retraction or consolidation in the near term.
Among the InvestingPro Tips, it is noteworthy that Ultra Tech Cement has been a prominent player in the Construction Materials industry and has maintained dividend payments for an impressive 20 consecutive years, demonstrating a commitment to shareholder returns. Furthermore, with the stock trading near its 52-week high and at a high Price/Earnings (P/E) ratio relative to near-term earnings growth, investors should consider the company's valuation multiples in their investment decisions.
For investors seeking a deeper dive into Ultra Tech Cement's potential and risks, there are additional InvestingPro Tips available, including an analysis of the company's debt levels and valuation multiples. To explore these insights further and make more informed investment decisions, visit https://www.investing.com/pro/ULTC and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With a total of 19 additional InvestingPro Tips listed, investors can gain a comprehensive understanding of Ultra Tech Cement's financial health and market position.
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