Shares of Ultratech Cement fell over 6 per cent on June 3 despite the cement maker announcing an investment of Rs 12,886 crore toward capacity expansion. The weakness on the counter can be attributed to weak demand, high fuel costs and entry of a new player (Adani group). Hence, the stock is reacting negatively to significant capacity announcement by the Aditya Birla Group firm.
In mid-May, the Adani Group, through a special purpose vehicle acquired a significant cement capacity of around 70 million tonnes per annum for $10.5 billion after the exit of Holcim, a swiss cement maker.
The buyout will make Adani Group the second-largest player in India's cement industry, which has an installed capacity of around 500 million tonnes.
Stock of Ultratech Cement declined 6.64 per cent to Rs 5,608 (a fresh 52-week low) against the previous close of Rs 6,007 on BSE.
UltraTech Cement is trading lower than 5-day, 20-day, 50-day, 100-day and 200-day moving averages. The share has lost 15.22 per cent in one year and fallen 26 per cent since the beginning of this year. Market cap of the firm fell to Rs 1.62 lakh crore on BSE.
0.48 lakh shares of the firm changed hands amounting to turnover of Rs 27.82 crore. The cement stock hit 52-week high of Rs 8,267 on November 8, 2021.
On Thursday, the firm said it would invest Rs 12,886 crore towards 22.6 MTPA (Million Tonnes Per Annum) capacity expansion. The capacity expansion will be undertaken at a cost of $76 per tonne of cement.
"The Board of Directors at its meeting held today, approved capex of Rs 12,886 crores towards increasing capacity by 22.6 mtpa with a mix of brown field and green field expansion," noted the cement flagship company of the Aditya Birla Group in an official statement.
This would be achieved by setting-up integrated and grinding units as well as bulk terminals. The additional capacity will be created across the country. The existing capacity of the firm for grey cement is 119.95 MTPA.
Emkay Global is bullish on the stock and given a target price of Rs 7,300, a 21 per cent upside to the current market price.
"We have a Buy rating on the stock with a target price of Rs 7,300. Our DCF-based target price (Mar'23) implies a 1-year forward EV/EBITDA of 14 times. We are awaiting more details about plant locations, clinker, grinding and WHRS capacities, among others," said Emkay Global in a report.
Morgan Stanley is overweight on the Ultratech Cement stock with a target price of Rs 8800. "The expansion plan is in line with our thesis of upcoming demand upcycle and Ultratech, as largest player, is gearing up for it. Moreover, its balance sheet is well-capitalised," the foreign brokerage said.
CLSA has assigned a Buy call to the stock. The target price has been cut to Rs 7640. "The company announced capacity expansion of 22.6 mt, taking total capacity to 159 mt by FY25 at $76 per tonne expansion cost. This will generate post-tax return on capital employed of 11% 23% capacity market share will further cement leadership," the international brokerage said.
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