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UltraTech Cement Ltd

| Q2 FY 26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤18th Oct 25

Summary : UltraTech reported strong Q2 volume growth, driven by brand conversion and rural demand, with significant expansion plans and cost optimization efforts underway.

Management Perspective positive : Demand is looking up, looking better for premium cement. My confidence is going up higher. I'm very confident that this is going to happen in the country.

Concall Report Analysis & Insights

Business Overview

  1. Sold over 31 million tons of cement in Q2 FY26 despite heavy rains.
  2. UltraTech brand grew 13.2% year-over-year, with rural markets growing 13%.
  3. Acquired India Cements and Kesoram assets are rapidly ramping up and converting to UltraTech brand.
  4. Fuel costs increased to INR1.8 per Kcal from INR1.78 per Kcal last quarter.
  5. One-off higher costs for maintenance, advertising, and staff impacted Q2 performance.

Future Growth Prospects

  1. Targeting 240-245 million tons capacity by fiscal '29, with further scope beyond.
  2. 22.8 million tons incremental capacity focused on Northern and Western markets.
  3. Cables and wires business is on track to launch production in Q3 CY '26.
  4. ICL assets undergoing debottlenecking and brownfield expansions for 17.55 million tons capacity.
  5. Aiming for 65% green power mix by the end of the current growth phase.

Management Insights

  1. Demand is looking up, especially for premium cement, with strong rural market growth.
  2. Rapid conversion of India Cements and Kesoram brands to UltraTech is yielding exciting results.
  3. GST 2 provides a benefit through reduction in Clean Energy Cess levy on coal.
  4. Expansion plans are on full swing, aiming for 200 million tons capacity by year-end.
  5. Mega infrastructure projects and urban real estate developments are very positive for cement demand.

Signs of Skepticism

  1. Management dismissed analyst concerns about potential oversupply in the North market.
  2. Specifics on premium segment pricing outlook were deferred to an offline discussion.
  3. Management did not provide regional volume growth numbers immediately.

Risk Factors

  1. One-off higher maintenance, advertising, and staff costs impacted Q2 profitability.
  2. Potential oversupply situation in the Northern market due to peer expansions (analyst concern).
  3. Fluctuations in spot fuel prices could impact overall fuel costs.

Good To Know

  1. The company operates 65 kilns across the country, including acquired assets.
  2. UltraTech has a retail footprint of almost 5,000 UBS stores.
  3. Ready Mix Concrete (RMC) business contributes about 4% of cement volumes.
  4. Clinker conversion factor is expected to reach 1.6x post current expansion.
  5. India Cements' brand transition is 31% complete, Kesoram's is 55% complete.

Key Drivers

  1. Strong rural housing demand growth.
  2. Mega infrastructure projects boosting demand.
  3. Acquired assets brand conversion.
  4. GST 2 reducing coal cess.

Key Analyst Discussions

Competitive Environment

  1. Analyst questioned the risk of oversupply in the North market given peer expansions.
  2. Management believes UltraTech will continue to gain market share, reaching 32%-33% capacity share.
  3. Management stated pricing is driven by demand and cost pressures, not capex efficiency.

Market Trends & Consumer Behavior

  1. Rural markets showed 13% growth, driven by housing, monsoon, and MSP prices.
  2. New infrastructure projects and urban demand are expected to boost overall demand sentiment.
  3. Industry growth for Q2 is estimated around 4.5% to 5%.
  4. Long-term CAGR growth for the industry is projected at 7-8%.

Financial Highlights

  1. Q3 is expected to see a reduction of approximately INR100 per ton in one-off costs.
  2. Overall fuel costs are not expected to inflate due to coal consumption benefits.
  3. Total capex for ongoing projects is estimated at INR10,000 crores minimum per year.
  4. Central region was most impacted by quarter-on-quarter price fall in realizations.
  5. EBITDA per ton for Kesoram is expected to return to INR1,000 by December.

Product Composition

  1. GST 2 is expected to boost demand for premium cement due to reduced purchase cost.
  2. Premium cement pricing depends on robust demand and cost pressures.
  3. Management did not provide a specific number for future premium mix percentage.

Strategic Considerations

  1. Company plans to increase clinker conversion ratio to 1.59-1.6x for sustainability and cost advantage.
  2. Expansion plans include both brownfield and greenfield units, continuously acquiring mining rights.
  3. Strategic rebalancing of grinding units occurred, e.g., dropping Kharagpur for Dankuni due to logistics.
  4. India Cements' Chennai grinding unit capacity will increase, dropping a bulk terminal investment.