UltraTech Cement said it would spend ₹12,866 crore on adding 22.6 million tonnes per annum (mtpa) capacity, just weeks after the Aditya Birla group flagship lost the race to acquire Holcim Ltd’s India cement assets to billionaire Gautam Adani, Mint reported.
The race to expand capacity comes as the government plans to spend a record ₹7.50 lakh crore this year to build roads and ports to boost growth, increasing demand for building materials such as cement. In addition, the revival of capital spending by the private sector, including construction firms, is also expected to boost cement demand, the report added.
On Thursday, the board of UltraTech approved the plan to increase capacity through a mix of brownfield and greenfield expansion. As the report highlighted the additional capacity will be created across the country and would include setting up integrated and grinding units as well as bulk terminals, the company said in a statement.
Brokerage firm Emkay Global highlighted Ultratech’s current grey cement capacity is 120mt (including 5.4mt in the overseas market). In its ongoing expansion plan, the company plans to add 11mt of clinker and nearly 16mt of cement capacity in FY23, increasing its total grey cement capacity to 136mt.
It has guided for a nearly 4mt addition in Q2FY23 and nearly 12mt in the second half of FY23. In the next phase of expansion, commercial production from these new capacities is targeted to go on stream in a phased manner by FY25, increasing its total grey cement capacity to 159mt by FY25, said the brokerage firm.
Emkay expects some delay in the commissioning of new capacities as (1) Ultratech is looking to add nearly 16mt of cement capacity in FY23; (2) part of the capacity expansion will be through a greenfield route in the new phase of expansion; and (3) no equipment ordering has happened yet, as per our channel checks.
"We have already built in an increase of 16mt grey cement capacity to 136mt by FY23. In our current forecasts, we have already built in around 85-90mt of capacity over FY22-25E, including 10mt of capacity of Ultratech from the next phase of expansion," Emkay said.
"Factoring in the total capacity addition of Ultratech by FY25, the industry’s capacity CAGR will increase by 40-50bps to 5.5 percent over FY22-25E against our estimate of a 7.5-8 percent demand CAGR over the same period. In current times of weak demand, high fuel costs and the entry of a new player (Adani group), any significant capacity announcement may be viewed negatively by the market," Emkay added.
Emkay has a 'buy' call on the stock with a target price of ₹7,300.
Disclaimer: The views and recommendations made above are those of the broking firms and not of MintGenie.