The recent approval of merger of Samruddhi Cement with itself has made Ultratech Cement a good bet in this sector. Post merger, the company will become the largest cement entity in India with a capacity of ~50 million tonnes per annum (mtpa) and the 10th largest in the world. The merged entity will have 22 grey cement plants in total, 504 MW of captive thermal power plants and 11.7 million cubic metres of ready mix concrete across 68 plants. Unlike pre-merger, when its market mix was concentrated in the West, East and South, it would become a pan-India player, with healthy contribution from all regions. It is expected to have around 20 per cent market share of total Indian cement capacity post merger. Additionally, it will also add specialty products like white cement and wall care putty to its portfolio.
With both cement and power expansion on stream, the stock offers benefit of volume growth and cost savings. Also, current valuations continue to be attractive compared to peers. We believe the stock is likely to become the preferred choice of investors as a proxy to the Indian cement industry. We further believe it should get valuations at least at par, if not at a premium to ACC/Ambuja which represents an upside potential of close to 20% from current levels. We recommend buying the stock with a target price of Rs 1100.
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