Sharekhan continues to maintain Buy rating on UltraTech Cement with a revised price target of Rs 8000

UltraTech Cement is expected to benefit from strong cement demand, driven by both public capex and housing sectors as highlighted by key indicators. The construction of houses under the government’s flagship programme, Pradhan Mantri Awas Yojana (both urban and rural), saw a strong 34.5% rise in FY2021 till date to 7.3 million units compared to FY2020 despite COVID-19 pandemic affecting construction activities during Q1 FY21. UltraTech Cement share price closed at Rs 6764 in last session, up Rs 67 or 1%.

Both PMAY-U and PMAY-G saw 35.3% and 33.3% rise in construction, respectively, during the same period, highlighting strong demand environment for the cement industry. Road construction activity for FY2021 till February was up 26.8% yoy to 11,138kms, while road project awards were up 1.8x yoy. Strong pick up in project awards and construction activities is expected to maintain strong demand environment for the cement sector.

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Sharekhan have also seen property registration in Mumbai and Maharashtra rising by 1.7x and 1.4x yoy, respectively, during January and February 2021. March continued the momentum with property registrations for March 2021 till date in Mumbai and Maharashtra at 1.2x and 0.8x, respectively, of the total March 2020 level. Further, the government’s Rs 111 lk cr investment plan over FY2020- FY2025 is expected to maintain healthy demand for the cement sector. As per Sharekhan’s channel checks, average pan-India cement prices in March 2021 have risen by 3.8% mom (up 6.6% yoy).

Further, average pan-India cement prices are up 3.9% yoy during Q4 FY21 till date (almost flat qoq, as cement prices remained under pressure m-o-m during December 2020 to February 2021. Sharekhan expects strong demand environment continuing in the near term along with benefit arising from improvement in cement prices to reflect in UltraTech Cement’s Q4 FY21 financials. On the longer term, Sharekhan expects

UltraTech Cement to benefit from growth momentum picking up, as the government’s focus continues on infrastructure investments, while the residential segment continues to show improvement.

UltraTech Cement’s 19.5 mtpa expansion plan at a cost of Rs 6527 cr (without affecting its current de-leveraging plan) would ensure its industry outperformance over the next four to five years. Hence, Sharekhan continues to maintain Buy rating on UltraTech Cement with a revised price target of Rs 8000.