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Ultratech Cement shares underperform Nifty, down 25% YTD; should you buy, hold or sell?

Ultratech Cement share price has plunged over 25 per cent so far this year, underperforming even benchmark NSE Nifty 50 which has tanked 5 per cent. The stock tumbled 6 per cent on Friday, a day after the company announced a Rs 12,900 crore capex plan.

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Ultratech Cement stock is trading below all its averages which is also a negative sign for the counter. On the downside, Rs 5,600 is the critical level.

Ultratech Cement share price has plunged over 25 per cent so far this year, underperforming even benchmark NSE Nifty 50 which has tanked 5 per cent. The stock tumbled 6 per cent on Friday, a day after the company announced a Rs 12,900 crore capex plan of adding 22.6 million tonnes per annum (mtpa) capacity by FY25. According to analysts at Sharekhan, this would aid Ultratech Cement in maintaining its leadership positioning in the sector. “We believe these aggressive capacity additions by large players can put undue pressure on operational profitability especially if cement demand does not resonate with the supply and energy costs do not normalize to a higher extent,” they said. Brokerages see up to 30% upside on the stock going forward.

Sharekhan: Buy
Target price: Rs 7,100; Upside 25%

The brokerage maintains buy call on the stock with revised target price of Rs 7,100, “We remain optimistic on the domestic cement demand growth over a longer period driven by expected healthy demand from infrastructure, rural housing and urban housing. However, aggressive capacity expansion plans of large players could get back fired if cement demand does not grow in tandem with rising supply,” it said. Consequently, there is a risk of possible downgrades in earnings estimates for the industry including for UltraTech going ahead, analysts stated. Considering the same, they lowered their EV/EBITDA valuation multiple for Ultratech, which is currently trading at 9.8x EV/EBITDA on FY24E earnings, below its long-term historical average.

Motilal Oswal: Buy
Target price: Rs 7,825; Upside 30%

According to analysts at Motilal Oswal, the expansion will help it achieve a domestic Grey Cement capacity of 153.5mtpa by FY25. They expect cement stocks to underperform in the near-term, given the sustained increase in energy costs, the entire impact of which should be felt in 1HFY23; the near-term weakness in demand; and the partial rollback of the price hikes in May’22. “We have kept our estimates unchanged as of now; however; we expect UTCEM to turn net cash positive in FY26 (from FY24 earlier) after announcement of fresh capex,” they said. The brokerage has a buy call on the stock with a target price of Rs 7,825 and reiterate Buy rating.

Meanwhile, Santosh Meena, Head of Research, Swastika Investmart Ltd recommends investors to sell Ultratech Cement shares. “The counter is witnessing a descending triangle formation pattern. In the last trading session, the stock has broken neckline support with strong volume. The stock is trading below all its averages which is also a negative sign for the counter. On the downside, Rs 5,600 is the critical level and below this, we can expect a free fall to Rs 5,000. On the upside, Rs 6,000 is an immediate susceptible area,” he said.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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