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    Buy UltraTech Cement, target Rs 4,510: YES Securities


    Buy UltraTech Cement at a price target of Rs 4510.

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    The current market price of UltraTech Cement is Rs 3,705.15.

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    YES Securities has a buy call on UltraTech Cement (UTCEM) with a target price of Rs 4,510.

    The current market price of UltraTech Cement is Rs 3,705.15.

    Time period given by the brokerage is one year when UltraTech Cement price can reach the defined target.

    Investment rationale by the brokerage-
    We expect overall cement demand in India to a slowdown in FY20E primarily led by the reduction in government-led infrastructure activities. Consequently, we estimate demand growth of 9.3 per cent/5.6 per cent/7.8 per cent during FY19/FY20/FY21 respectively for the industry (demand CAGR of 7.6 per cent over FY18-FY21E from 297 MT to 370 MT).

    During the same period, we reckon UTCEM to deliver volume CAGR of 12.2 per cent led by acquisition and ramp up of new assets. However, we estimate pricing scenario to be subdued in the near future on account of slowing down in demand, influx of new capacities (to the tune of 64 MTPA over FY18-FY21E) and heightened the competitive intensity. Accordingly, we expect EBITDA CAGR of 9.2 per cent over FY18-FY21E.

    UTCEM continues to be our top pick in the large-cap space as we believe it will be the biggest beneficiary of the next up-cycle on account of dominant capacity share (nearly 22 per cent by FY21E), strong brand presence, economies of scale and healthy balance sheet (net debt/equity of 0.41x by FY21E). We value UTCEM at EV/EBITDA of 16x and EV/tonne of $200 on FY21E and arrive at a target price of Rs 4,510 (+19 per cent upside). We have a 'Buy' rating on the stock.
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