Prabhudas Lilladher has published a research note with 'accumulate' recommendation for UltraTech Cement (UTCEM) with a positive price target. With prevailing macroeconomic headwinds and post-monsoon demand gloom in some regions, UltraTech’s robust pricing, resilient cost management, and aggressive capacity ramp-up are setting new benchmarks in Indian cement. The brokerage trims its FY26 earnings estimate modestly but upholds mid-term optimism given the company's proven execution, superior market presence, and assertive green strategy. Investors are advised to eye the tactical Rs12,561 support and Rs13,634 as the new 12-month target.

Prabhudas Lilladher's Investment Thesis

Prabhudas Lilladher reaffirms an ‘Accumulate’ stance on UltraTech Cement with a revised target price of Rs13,634. Despite a softer Q1FY26 on operating performance, mostly volume-led, structural positives outweigh near-term challenges. Strong price realization, capacity expansion, and disciplined cost strategy trump subdued demand in north and central India due to monsoons. The company is laser-focused on scaling up—targeting double-digit volume growth—and executing on ambitious capex and sustainability goals. The stock trades at compelling valuations relative to sector peers.

Capacity and Expansion: Ambitious Growth Trajectory

Aggressive capacity augmentation is the cornerstone of UltraTech’s long-term vision. The company has already installed 3.5mtpa in the fiscal year so far, with another 10.6mtpa expected to come onstream within FY26E. Management aspires to deliver double-digit volume growth, banking on the synergies created by integrating recently acquired assets from Kesoram and India Cements (ICEM).

Strategic regional expansion and integration initiatives are in play. The ongoing absorption of Kesoram and ICEM assets fortifies UltraTech's pan-India presence, enabling greater resilience to regional demand oscillations and enhancing logistical efficiency.

Pricing Power and Realizations: A Key Differentiator

Pricing strength shields UltraTech from weak regional demand. Q1FY26 reported a 2.1% quarter-on-quarter uptick in average grey cement realization, primarily propelled by price hikes in Southern and Eastern India. Blended realization advanced 4.5% sequentially, touching Rs5,939/tonne.

Premium products bolster value proposition and margins. High-margin premium products now constitute nearly 34% of the sales mix, an improvement from 31% in Q4FY25.

Volume, Operating Metrics, and Costs

Volume growth tempers but does not derail momentum. While like-for-like volume growth was subdued—up 1.8% YoY to 33.1mt (due to base adjustment for Kesoram)—the consolidated volume, including ICEM, saw a nearly 10% YoY enlargement to 36.8mt.

Disciplined cost control measures offset input inflation. Raw material costs per tonne rose 16% YoY to Rs1,084, reflecting higher tolling and weaker volumes. However, UltraTech adeptly managed fuel (P&F) costs, down 9% YoY to Rs1,299/tonne, owing to advantageous petcoke prices and improved renewable energy mix.

Superior operational leverage is amplifying profits. EBITDA per tonne soared 40% YoY to Rs1,271 due to pricing improvement and expense rationalization. Consolidated EBITDA, including ICEM, hit Rs1,197/tonne.

Profitability and Financial Performance: Robust Growth Ahead

Margins and bottom line are marching upwards. Q1FY26 standalone adjusted PAT stood at Rs22.3bn, a stellar 56% YoY surge, albeit 17% lower QoQ on seasonality. For FY26E, UltraTech is forecast to clock revenue/EBITDA/PAT CAGRs of 17%/34%/47% over FY25-27E.

Key financial ratios remain healthy, supporting premium valuations. Return on equity is expected to rise to 13.2% in FY26E and 15.7% in FY27E, with EBITDA margins expanding to 20.5% and 21.8%, respectively.

Debt and capex are prudently managed. Capex for FY26 is guided at Rs100bn, majorly funded through internal accruals and modest debt. The net debt-to-equity ratio is projected to retreat to 0.2x in FY26E.

Integration and Transition of Acquisitions

Merger and operational integration strategies are progressing smoothly. The transition of Kesoram and ICEM brands under the UltraTech umbrella is on schedule, with full merger of ICEM likely post FY27, contingent on seamless operational transition.

Efficiency improvements are evident at India Cements. ICEM posted Q1 EBITDA/tonne at Rs424, a dramatic increase from Rs88 in Q4FY25, underlining the gains from management intervention.

Green Initiatives and Sustainability

Shifting decisively toward renewable energy and sustainability. UltraTech ramped up its green energy capacity, achieving 1.08GW of renewable assets and 363MW of Waste Heat Recovery Systems (WHRS). The share of green power climbed to 39.5% in Q1, with the ICEM portfolio targeting an ambitious 86% RE share by FY28E.

Stock Levels, Valuation, and Investor Guidance

Valuation remains attractive against sector averages. UltraTech Cement is trading at 20.8x EV/EBITDA FY26E and 16.6x FY27E, with a price-to-earnings ratio of 37.6x and 28.3x for the same periods.

Market cap and liquidity underpin investor conviction. The company boasts a commanding market cap of Rs3,701bn and robust trading volumes, with a 52-week high of Rs12,714 and support seen at Rs12,561.

Target Price and Recommendation: ‘Accumulate’ with a target price of Rs13,634. Current market price (CMP) is Rs12,561; risk-reward favors long-term investors seeking exposure to India’s infrastructural and housing growth via the cement sector.

Key Financial Highlights: FY24-FY27 Projections

Outlook and Risks

Outlook remains buoyant despite regional headwinds. Management is confident of accelerating volume growth and sustaining high margins in the forthcoming quarters, anchored by rapid green energy adoption, product premiumization, and digitized operational efficiency.

Risks to thesis: Unpredictable input cost spikes, sluggish monsoon recovery affecting construction activity, integration hurdles with recent acquisitions, and competitive intensity in price-sensitive markets.

Final Take

UltraTech Cement remains the bellwether in India’s cement landscape. With Prabhudas Lilladher’s bullish ‘Accumulate’ rating and a revised price target of Rs13,634, the stock offers a compelling blend of growth, resilience, and sustainable practices for discerning investors. Keep a close watch on support at Rs12,561, and stay invested for significant upside as India’s economic engines fire on all cylinders.