Ultratech's fresh capex plan worries investors
1 min read 03 Jun 2022, 10:18 AM ISTIn current times of weak demand, high fuel costs and entry of a new company in the sector, any significant capacity announcement may be viewed negatively by the market, said Emkay Global
PremiumCement giant Ultratech Cement Ltd on Thursday announced a 22.6mtpa increase in its grinding capacity at a capital expenditure of Rs12,886 crore. Mtpa is short for million tonnes per annum. The capacity increase would be through a mix of brownfield and greenfield expansions.
The management said in a press release the commercial production from these new capacities is expected to go on stream in a phased manner, by FY25. Further, UltraTech’s current expansion program is on track and estimated to be completed by the end of FY23, added the release. Note that post the completion of the latest round of expansion, Ultratech's grey capacity will grow to 159.25 mtpa.
Analysts at Emkay Global Financial Services Ltd point out that the next phase of expansion will support volume growth and help Ultratech retain its leadership position. "In our current forecasts, we have modelled capacity/volume CAGRs of 7%/9% over FY22-25E. Factoring-in next phase of capacity addition by FY25, we see 7% upside to our current capacity estimates and ~5% upside for volume forecast of FY26," said the Emkay report. CAGR is short for compounded annual growth rate.
Yet, reacting to this development, shares of the company declined by 2.5% on the NSE in Friday's early trade.
"In current times of weak demand, high fuel costs and entry of a new company in the sector, any significant capacity announcement may be viewed negatively by the market," added the Emkay report. Recently, Adani Group inked a pact to acquire Holcim's business in India, which comprises its 63.11% stake in Ambuja Cement Ltd, which owns a 50.05% interest in ACC Ltd, as well as its 4.48% direct stake in ACC.
Secondly, analysts at Motilal Oswal Financial Services Ltd now expect Ultratech to turn net cash positive in FY26 from FY24 earlier, in the backdrop of fresh capex. While the domestic brokerage house is positive on the long-term prospects of the cement sector, in the near-term it expects cement stocks to remain under pressure.
