ULTRACEMCO - UltraTech Cement Ltd Share Price

In the Q1 FY26 earnings call, UltraTech Cement management provided a positive outlook driven by various key factors. Management noted that the government's emphasis on infrastructure development is expected to spur cement demand, highlighting an 8.9% increase in highway construction with 2,108 kilometers built in Q1 FY26. Management forecasts significant growth from government capex initiatives, suggesting demand growth in the cement sector will benefit from a low base in FY25.

For the current quarter, UltraTech Cement reported a consolidated growth of 9.7% year-on-year. Notably, the performance of Kesoram, recently integrated into UltraTech, contributed to financial consolidation. Operational improvements, including integration efforts with India Cements, are also underway, with goals set for enhanced operating costs by FY28.

Key forward-looking points include:

1. A targeted EBITDA per ton exceeding INR1,000 by FY28, driven by cost efficiency initiatives, including a focus on Waste Heat Recovery Systems (WHRS) and renewable energy sourcing significantly enhancing sustainability measures.
2. Anticipated year-on-year volume growth target of at least 10% for FY26, reflecting favorable market conditions and recent capacity expansions. This growth target includes results from Kesoram's operations.
3. Plans for continued investment in capex, amounting to around INR10,000 crores in FY26, aimed at both efficiency improvements and brownfield expansions.
4. Management expressed optimism about maintaining pricing power across markets, especially in response to rising demand in the housing and infrastructure sectors.

Overall, management's strategic direction emphasizes growth through operational efficiency, sustainability initiatives, and proactive market positioning in a recovering post-COVID economy.

Question 1: "Is there a case that operating performance for both Kesoram and India Cements run faster than your earlier guidance of clocking INR1,000 per ton by FY '26 and FY '28 respectively?"

Answer: It could happen. If pricing holds steady, we may achieve targets earlier, especially as prices have shown improvement even in July. However, successful integration of operations is critical. It involves efforts across various facets, including processes and logistics, aiding us in realizing our goals.

Question 2: "How should we look South from here? I mean, should this continue or can elevated competition bring back what we saw last year?"

Answer: Our perspective is optimistic. The South markets are consolidating well, driven by mega projects and infrastructure spending. The transition in leadership in states like Andhra Pradesh also bodes well for cement demand, so we anticipate positive performance in the region.

Question 3: "If you could give us a standalone realization as an UltraTech plus Kesoram, what is that differential sequentially?"

Answer: At an UltraTech level, the realization rose by 2.2%. However, when including Kesoram, the combined realization might be slightly lower, around 2.3% due to volume adjustments. The size of Kesoram's contribution remains minimal, hence the small difference.

Question 4: "How much more brownfield expansion scope is already there in the expanded portfolio?"

Answer: We have outlined a blueprint for future growth and will present it to our Board. By the end of the current financial year, we expect to announce additional growth phases as there are ample opportunities for brownfield expansions aligned with India's cement demand growth of 5% to 7%.

Question 5: "Will there be a consideration for further debottlenecking or brownfield expansion in India Cements?"

Answer: Yes, there are opportunities for brownfield expansion in India Cements. We are preparing for Phase 4 of our growth capex and subsequent phases will tap into additional brownfield opportunities present within India Cements' locations as well.

Question 6: "How should we approach the pricing trends, especially the trade and non-trade price gap in the South?"

Answer: While I can't provide exact numbers, the non-trade price increases have been significant compared to trade prices. We monitor these trends closely as they impact our overall pricing strategies, especially in competitive regions like the South.

Question 7: "If I adjust to the volumes of India Cements, I think organically, our volume growth is just 2% [...] What gives the confidence of a 7%, 8% growth for the full year?"

Answer: Over 40% of cement demand occurs in the last quarter, traditionally the strongest period. Cement consumption is seasonal, peaking in the January-March timeframe, and we expect substantial growth through subsequent quarters as labor returns and infrastructure projects ramp up.

Question 8: "Would you be able to put a number to the capacity that we can think, let's say, in the following 3, 4, 5 years?"

Answer: It's difficult to provide an exact number, but the demand for cement will continue to grow as infrastructure projects expand. We intend to align our growth with this demand to ensure we support the evolving needs of the market over the coming years.

Question 9: "What was the capex during this quarter?"

Answer: The capex for this quarter has been around INR2,000 crores. This amount aligns with our typical quarterly investment levels, ensuring we continue to invest in growth and efficiency.

Question 10: "As for the cost side, how should we look at future power and fuel costs?"

Answer: We expect fuel costs to remain range-bound, possibly decreasing rather than increasing. However, external global factors can impact prices unexpectedly, which we must monitor closely to manage our operational costs effectively.