UltraTech’s sizzling Q3 makes analysts project strong stock gains

UltraTech’s sizzling Q3 makes analysts project strong stock gains

MUMBAI: Analysts were enthusiastic about the prospects for UltraTech Cement’s stock after the company reported strong earnings growth for the quarter ended December. Analysts expect the cement giant to benefit the most from the rebound in domestic demand given that the effects of COVID-19 pandemic are steadily fading to the background.

Brokerages including Goldman Sachs, DAM Capital and Haitong Securities raised their price targets by 10-14 per cent for the stock, and retained their bullish calls as they upgraded their earnings estimates for the flagship company of the Aditya Birla Group.

“With demand indicators looking up and costs hardening, we expect outperformance of the industry leader to continue. With steps on increasing green energy, continued capacity expansion and a strong balance sheet, its dominant position should only get stronger,” Goldman Sachs said in a note.

UltraTech Cement reported volume growth of 14 per cent on year in the December quarter, which was sharply above analysts’ projections of 6 per cent, suggesting that the demand environment in the country has started to pick up.

UltraTech’s standalone revenue from operations surged 18.6 per cent on-year to Rs 11,830.6 crore, while its net profit more than doubled to Rs. 1,550.2 crore.

Industry demand trends have been strong, and demand from urban areas is also seeing signs of recovery, the company told analysts in a post-earnings conference call. Rural and individual housing demand continues to remain robust and the infrastructure activity is progressing well, the company said.

“De-leveraging progress sustains with increasing internal cash flows and divestment of non-core assets. Furthermore, management outlook on demand continues to be robust which is reflected in company’s robust capex plans for the next 2-3 years,” said brokerage firm Haitong Securities.

Shares of UltraTech have already risen merely 23 per cent in the past 90 days, slightly outperforming the Nifty 50 index that has given returns of 20 per cent during this period. Haitong Securities believes that even at 11.3 times two-year forward enterprise value-to-EBITDA, the stock’s valuations are “attractive”.

Brokerage JP Morgan India said that the company’s focus on environment, social and governance metrics, and its green energy plan rollout is a “welcome” development, and that company is best-positioned to deliver share price gains and improvement on the return on equity front.

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