UltraTech new capex plan to commence in FY23 or FY24, says brokerage

13 Jun 22

UltraTech Cement Ltd’s recently announced 22.6-mln-tonne-per-year capacity expansion is likely to be funded entirely through internal accruals and will commence in 2023-24 (Apr-Mar) or 2024-25, the company said in a recent investor conference according to a report by brokerage Jefferies India.

In 2022-23, the company will be adding 16.5 mln tonne per year capacity which was a part of capex plan announced in 2020.

On Jun 2, UltraTech Cement had announced that it would incur capital expenditure of up to 128.9 bln rupees towards increasing capacity by 22.6 mln tonne per year by way of integrated units, grinding units and bulk terminals, in a phased manner by 2024-25.

It had specified in the stock exchange filing that it would fund the capex through a mix of borrowings and internal accruals.

The brokerage report said that UltraTech specified its blended capex plan was for $76 per tonne, greenfield expansions were likely at around $100 per tonne and brownfield expansions at around $50 per tonne.

The report also stated that the company found cement demand in Apr-May to have fallen short of its expectations which led to price declines of 10-12 rupees per bag in May which followed price hikes of 30 rupees per bag in April.

The company also reportedly said that based on current petcoke prices of 250-260 rupees per tonne and international coal cost of $370 per tonne, its power and fuel costs are likely to increase by around 300 rupees per tonne as compared to the Jan-Mar quarter’s number.

Meanwhile, Fitch Ratings said today that it had raised the outlook of the ‘BBB minus’ long-term foreign currency issuer default rating of UltraTech Cement to stable from negative, following the rating agency’s recent upward revision of the outlook on India’s issuer default rating of ‘BBB minus’ to stable from negative.

The ratings agency said that UltraTech’s higher capacity expansion capex and the faster new capacity additions in the domestic cement industry will weigh on margins and lead to moderately negative free cash flow over the current and next financial year.