UltraTech Cement gains volume and pricing strength despite near-term fuel cost pressure

Investment View and Valuation

Motilal Oswal Financial Services Limited’s July 20, 2026 results update retains a Buy recommendation on UltraTech Cement with a target price of Rs 13,800, compared with the market price of Rs 11,903. The broker considers the company’s 1QFY27 operating performance broadly in line with expectations and remains constructive on medium-term cement demand.

The investment view is supported by government-led infrastructure activity, affordable housing, urbanisation, redevelopment and commercial real estate demand, as well as UltraTech Cement’s scale, brand strength and cost-control measures. The key near-term concern is cost inflation, which is expected to pressure profitability sequentially in 2QFY27.

The target price is based on 18 times FY28E EV/EBITDA. The stock was trading at about 18 times FY27E and 15 times FY28E EV/EBITDA.

1QFY27 Financial Performance

UltraTech Cement reported consolidated 1QFY27 revenue of Rs 24,650 crore, EBITDA of Rs 5,020 crore and adjusted PAT of Rs 2,610 crore, representing year-on-year growth of about 16 per cent, 14 per cent and 16 per cent, respectively. Revenue and EBITDA were 2 per cent and 1 per cent above Motilal Oswal’s estimates, while adjusted PAT was about 5 per cent ahead, aided by lower-than-expected depreciation and interest costs.

Sales volume rose about 12 per cent year on year to 41.3 million tonnes, broadly in line with the broker’s estimate. Ready-Mix Concrete revenue increased about 22 per cent and white cement revenue grew about 23 per cent year on year, with both reported 12 per cent above estimates.

Realisation, Costs and Balance Sheet

Blended realisation increased about 3 per cent year on year and sequentially to Rs 5,967 per tonne. Grey cement realisation increased about 1 per cent year on year and about 4 per cent quarter on quarter. EBITDA per tonne increased about 1 per cent year on year to Rs 1,214, while operating margin declined about 40 basis points year on year to about 20 per cent.

Operating cost per tonne rose about 4 per cent year on year and 5 per cent sequentially, led by higher variable and other expenses. Freight cost per tonne was flat year on year.

Demand, Volumes and Pricing Outlook

Management targets double-digit grey cement volume growth in FY27. Central and West India recorded growth above 15 per cent year on year, while North and South India also grew at healthy double-digit rates. East India grew more slowly because of election-related disruptions and temporary labour shortages.

Domestic cement volumes rose about 13 per cent year on year, ahead of industry growth of about 7-8 per cent. Utilisation improved to about 81 per cent from 76 per cent a year earlier. Management expects cement prices to remain broadly stable through the monsoon, supported by higher input costs, premium-product mix and brand strength.

Cost Inflation and Near-Term Margin Risks

Fuel consumption cost was Rs 1.90 per Kcal in 1QFY27, compared with Rs 1.78 per Kcal in 1QFY26 and Rs 1.77 per Kcal in 4QFY26. Management expects fuel cost to reach around Rs 2.0 per Kcal and peak in the current quarter after inventory procurement.

Management expects total cost inflation of about Rs 130-140 per tonne sequentially in 2QFY27. The increase is expected to be driven by higher fuel costs, monsoon seasonality, scheduled kiln maintenance, higher industrial diesel prices and limestone mining costs. These factors are the principal near-term margin headwinds.

Capacity Expansion and Brand Integration

UltraTech Cement commissioned 8.7 million tonnes per annum of capacity during the quarter, taking domestic grey cement capacity to 200.1 million tonnes per annum and total cement capacity to 205.5 million tonnes per annum.

The company completed integration of the Kesoram and ICEM brands into the UltraTech Cement brand, with no market-share loss in the value segment. The UltraTech brand grew about 21 per cent year on year.

Management continues to target Rs 1,000 per tonne EBITDA for ICEM, with the full capex benefit expected from 4QFY28. The Rs 1,800 crore C&W investment remains on schedule and within budget, with Rs 890 crore spent or committed. Commercial launch is targeted in 3QFY27.

Earnings Outlook and Return Ratios

Motilal Oswal has largely maintained its FY27E and FY28E estimates. It forecasts FY26-FY28 consolidated revenue, EBITDA and PAT CAGRs of 12 per cent, 17 per cent and 19 per cent, respectively, alongside about 10 per cent volume CAGR.

The broker expects net debt to peak at Rs 18,450 crore in FY27 while net debt to EBITDA remains below 1.0 times. It forecasts RoE and RoCE to improve to about 14 per cent and 12 per cent by FY28 from about 11 per cent and 10 per cent in FY26.