* Volumes: Total volumes for Q4FY20 stood at 21.4 MT (est. of 21.7 MT), down by 15.7% y/y due to lockdown measures. Sharp jump in utilization level of Century assets to ~83% during the quarter came in as a positive surprise.
* Operating performance: EBITDA was Rs 24.43 bn (‐3.9% y/y) – in line with our estimates of Rs 24.4 bn. EBITDA/te stood at Rs 1,139, improving by 14% y/y led by stable pricing scenario and reduction in clinker production cost (which declined by 13.7% y/y). EBITDA/te for Century assets (ex‐one time cost) was Rs 575 (flat y/y) vis‐à‐vis our estimates of Rs 595.
* Capex: Expected outgo for FY21 stands at Rs 10 bn while Greenfield expansion of 2.2 MT in Orissa would be deferred
* De‐leveraging: UTCEM reduced net debt by Rs 52.5 bn during FY20 with current net debt/EBITDA at 1.95x vis‐à‐ vis 3.1x in FY19.
* Notwithstanding the fact that current utilization level of 60‐ 70% for UTCEM is encouraging, we believe that there is limited room for further improvement of utilization level in the medium term as labour migration and arrival of monsoon would drag demand growth. Going ahead, we estimate volumes to witness 12.4% de‐growth y/y in FY21 and a growth of 25.7% y/y in FY22.
* EBITDA/te at Rs 1,128 was the highest for UTCEM since inception and was attributable to sturdy pricing scenario and soft energy costs. Although further decline in input cost augurs well, we expect pricing scenario to come under pressure once normalcy in operations is attained for the industry. Consequently, we estimate EBITDA/te to hover around Rs 1075 and Rs 1079 for FY21 and FY22 respectively.
* Currently UTCEM is trading at EV/EBITDA at ~11.4x and EV/te of $134 on FY22E. Taking an average of EV/EBITDA and DCF derived values, we have a target of Rs 4,413/share (implied EV/EBITDA multiple of 14x on FY22E).
Risk to our call
* In a scenario of second wave of Covid‐19 spread, demand and pricing outlook would be severely hampered.
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