UltraTech Cement shares: Brokerage sees 34% upside; points to C&W foray as positive

UltraTech Cement Ltd shares could gain 34.22 per cent from the market price, according to Choice Institutional Equities, which set a 12-month target price of Rs 15,210 per share. The brokerage assessed the stock at Rs 11,332 and maintained UltraTech Cement as its preferred large-cap cement play.

Choice highlighted UltraTech's Rs 1,800 crore foray into the cables and wires (C&W) segment as strategically and directionally positive. The brokerage noted that the investment represents around 2 per cent of the company's current capital employed, making it a relatively modest allocation relative to its overall balance sheet.

UltraTech is targeting a 6-7 per cent share of the domestic C&W market by FY30. Choice said the initiative represents a measured entry into an adjacent category rather than an aggressive diversification bet.

At full capacity utilisation, which Choice estimates could be achieved around FY30-31, the wires and cables business has the potential to generate annual revenue of around Rs 9,000 crore. This would translate into an estimated asset turnover of around 5 times.

Assuming an EBITDA margin of 10-12 per cent, broadly in line with established industry players, Choice estimates that the business could deliver an asset-level return on capital employed (ROCE) of more than 20 per cent at peak utilisation.

The brokerage's calculations also suggest shareholder returns of around 8 per cent, indicating that the project could be value accretive. Choice said the C&W business compares favourably with several alternative capital-deployment opportunities.

"We value UltraTech Cement using an EV/CE-based methodology, assigning a 3.8x FY28E EV/CE multiple, which translates into a 12-month TP of Rs 15,210/share. Importantly, our current valuation does not factor in any potential value accretion from the company's wires and cables foray, as we prefer to monitor the execution and progress of the new business before incorporating its contribution, the brokerage mentioned.

"UltraTech Cement remains our preferred large-cap cement play, supported by its superior long-term earnings visibility and strong execution capabilities," it further said.