UltraTech Cement capacity expansion and efficiency drive FY28 earnings growth

Investment View and Target Price

ICICI Securities maintains its BUY rating on UltraTech Cement with a target price of Rs 13,880, compared with a CMP of Rs 11,904. The positive view is based on better-than-industry volume growth driven by aggressive capacity expansion, improving utilisation of the acquired India Cements and Kesoram Industries assets, and an expected improvement in EBITDA per tonne through realisation gains, cost efficiencies and operating leverage.

Q1FY27 Financial Performance

UltraTech Cement reported a strong Q1FY27 performance, supported by higher volumes, improved blended realisations and healthy capacity utilisation.

Scale and Regional Capacity

UltraTech Cement is India’s largest cement manufacturer, with total cement capacity of around 200 mtpa. Its regional capacity comprises 53.5 mtpa in the South, 39 mtpa in the East, 37.5 mtpa in the North, 35.6 mtpa in Central India, 34.5 mtpa in the West and 5.4 mtpa of overseas operations.

Capacity Expansion and Volume Growth

Management has retained its guidance for double-digit volume growth in FY27E, supported by healthy demand across regions, infrastructure, housing and commercial real estate. UltraTech Cement plans to add around 7.2 mtpa in FY27E and 29.8 mtpa in FY28E.

Management is also evaluating the next expansion phase beyond FY28E, with estimated capital expenditure of around Rs 17,000 crore over the subsequent two to three years. ICICI Securities estimates volumes will rise at around an 11% CAGR from 154.3 mtpa in FY26 to 189.2 mtpa in FY28E.

Pricing, Premiumisation and Acquired Assets

Management expects cement pricing to remain broadly stable during the monsoon quarter despite seasonal weakness, supported by higher industry costs and healthy demand. East and South region prices improved during Q1FY27, while pricing was largely stable in the West, Central and North.

Premiumisation, a higher share of blended cement and a retail-focused strategy are expected to support realisations. UltraTech Cement has completed the full migration of the India Cements and Kesoram brands to UltraTech without losing market share.

India Cements’ EBITDA per tonne improved from around Rs 386 in Q2FY26 to around Rs 603 in Q1FY27. Management is targeting EBITDA per tonne of around Rs 1,000 by Q4FY28E.

Near-term Cost Pressures

Near-term costs remain a concern. Management expects total cost inflation of around Rs 130–140 per tonne in Q2FY27E because of higher fuel costs, annual maintenance shutdowns and seasonal operating deleverage.

• Fuel cost increased by around Rs 40 per tonne in Q1FY27.
• Higher packing-bag costs added nearly Rs 20 per tonne.
• Higher industrial diesel prices increased limestone-mining costs.
• Average lead distance declined to 360 km from 367 km, supporting logistics savings.

Management expects cost pressures to ease in H2FY27 if geopolitical tensions subside and fuel, freight and insurance costs normalise.

Earnings Outlook and Efficiency Initiatives

ICICI Securities expects operational performance to improve from H2FY27E through FY28E, supported by firmer realisations, green power, renewable energy, waste heat recovery systems, fuel-mix optimisation and logistics efficiencies. Renewable power accounted for around 47% of total power requirements at the end of Q1FY27.

Valuation and Key Risks

The target price of Rs 13,880 is based on a valuation of 17x FY28E EV/EBITDA.

Key risks to the investment view include:

• A slowdown in cement demand.
• Delays in capacity expansion.
• Higher commodity prices.
• Intense competition.