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Karvy Stock Broking
UltraTech Cement (Buy)
CMP: ₹2,715
Target: ₹3,310
UltraTech Cement, country’s largest cement player with 60.2 mt capacity, would be the biggest beneficiary of pick up in cement demand post monsoon. Though the cement offtakes has been sluggish in the recent past and expected to remain weak in the near term (because of slowdown in construction activities in rural areas and monsoon), the cement consumption should pick up post monsoon led by increase in government capex in housing, roads/ highways, railways and urban development.
UltraTech has been strategically growing its capacity though expansions and acquisitions. We expect grey cement sales volumes to grow at a CAGR of about 12 per cent during FY15-17E on account of pick up across its selling markets and increase in capacity.
The stock has corrected by about 17 per cent in the last three months owing to weakness in cement demand and prices. Valuation looks attractive considering the largest player with further growth potential, improvement in profitability and return ratios.
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