UltraTech Cement: Volume expansion to continue

UltraTech Cement, the largest cement manufacturer in India and also the largest in the world outside of China, is set to continue its expansion phase. Supported by strong demand and price improvement, earnings growth should sustain for the company. We earlier recommended investors hold the stock in August 2024. This was despite the strong volume growth expectations as valuations were at a premium (35 times one-year forward earnings). The stock has returned a modest 8 per cent in the period and valuations have moderated to 32 times — in line with the last five-year average of 31 times.

The company’s volume expansion is continuing, supported by price improvement. The Ultravolt foray (cables and wires) offers an additional option for upside as well. Long-term Investors can consider the stock at opportune corrections that provide a margin of safety in valuations.

Topline growth

The company reached 204.7 mtpa (million tonnes per annum) capacity in September 2026 from 100 mtpa capacity in FY19-end — delivering a strong capacity growth of 13 per cent CAGR in the period. The 14 per cent revenue CAGR in FY22-26 has essentially been bankrolled by capacity additions and cement realisations delivering a meagre 1 per cent CAGR.

UltraTech now aims to reach 238 mtpa by FY28. This includes a recent 3.6-mtpa addition in Andhra Pradesh. It has also integrated several acquired entities, notably Kesoram Cement and India Cements, which account for 13 per cent of consolidated capacity. Gradual improvement in production at these units and new plant additions should sustain low double-digit volume growth over the next two-three years. The company will also announce its next leg of growth, beyond FY28, within a year.

While cement prices have not expanded as did steel, PVC and other materials, the company expects improved pricing in the next few quarters. The spot prices in September were 5 per cent higher over previous quarter. While a portion of prices could be in response to higher raw material costs, strong demand also supports prices, and the latter should sustain improved cement prices even if input costs deflate.

Ultravolt, the cables and wires (C&W) business, was launched in September 2026. The division, with a planned outlay of ₹1,800 crore, has invested ₹1,100 crore, with the remaining to be invested in a year. While the division is in its very early stages and up against established competitors, it should likely contribute around 4-6 per cent of revenues by FY28 — assuming 4 times asset turnover ratio, which is a conservative estimate for the C&W segment.

Margin growth

From an EBITDA per tonne of ₹1,224 in FY22, the margins contracted to ₹910 in FY25 before recovering to a ₹1,103 in FY26. The margins again contracted in H1FY27 (as shown in table), as raw material prices went up during the period. Fuel, diesel, power and pet coke prices had increased in the last six months owing to the West Asian crisis. With a cooling off in crude prices post the US mid-term elections, the input prices are expected to normalise, going forward.

Over a long term, the company targets an EBITDA per tonne of ₹1,400. Operating leverage, cost focus and improvement in acquired entity operations are expected to support the margin improvement. As the production volumes increase, the operating costs will also increase, but by a slower margin — as economies of scale can play out. On the cost improvement aspect, the company can target lead distance (distance covered by raw materials to factory to customer) optimisation with a more distributed presence of plants, clinker, mines and distribution warehouses across the country. It has achieved 47 per cent of power requirement from renewable sources and aims to reach 85 per cent by 2030, which includes waste heat recovery systems and renewable sources of energy.

Kesoram Cement acquired in FY24 and India Cements the following fiscal have reported an EBITDA per tonne of ₹1,000 and ₹600 respectively. UltraTech is investing close to ₹2,000 crore in India Cements and ₹500 crore in Kesoram Cement to improve capacity and profitability of operations. As the cost measures at the acquired entities bear fruit, the consolidated margins could improve.

Financials

UltraTech Cement has a net debt to EBITDA of 1.26 times as of Septemeber 2026. The company expects to reduce the ratio to 1 time by March 2027 and expects to hold the same during future capex. It has plans to invest around ₹10,000 crore per year on capex, which should be supported by operating cash flows and higher volume of operations.

The company has reported revenue/PAT growth of 14 per cent/3 per cent CAGR in FY22-26 to ₹88,512 crore/₹8,188 crore in FY26. The slower profit growth — account of higher base in FY22, raw material cost volatility and lack of cement price growth — has offset operating leverage and cost-efficiency benefits. With a gradual improvement in cement prices and input price expected to normalise, the company can benefit from volume growth reflected in margin improvement as well. The low double-digit volume growth with 1-3 per cent price growth along with margin improvement may support a higher earnings growth for the company. The Ultravolt foray may drive revenue growth, but margin accretion to consolidated levels may be evident in a longer term.

With the company trading at 32 times one-year forward earnings — in line with the five-year average, the earnings potential is well reflected in valuations.

Published on November 14, 2026