Robust Performance despite Volume Miss
UltraTech Cement (UTCEM) has reported a better-than-expected operating performance in 1QFY20 despite miss on volume front. EBITDA grew by a stellar 57% YoY (+15% QoQ) to Rs25.5bn mainly led by superior and higher-than-expected realisation. Witnessing a sharp up-tick of 13.2% YoY and 12% QoQ, cement realisation/tonne came in at Rs5,018. EBITDA/tonne stood at strong Rs1,428 in 1QFY20 vs. Rs928 in 1QFY19 and Rs1,039 in 4QFY19. However, sales volume grew by mere 2% YoY to 17.86mnT, missing our estimate of 18.5mnT. Higher realisation growth was mainly supported by sharp uptick in realisation across the pockets, higher premium products sales volume (+28% YoY), less discount/incentives and higher traded sales volume. Further, sequential deterioration in operating cost/tonne is attributable to higher other expenditures due to annual maintenance shutdown. Notably, input cost/tonne (RM + Power & Fuel cost) declined by 1% QoQ. Net profit zoomed by 100% YoY and 18% QoQ to Rs12bn vs. our estimate of Rs10.2bn. Going forward, we expect its volume growth to witness decent traction with the pick-up in construction activities. Considering Century Assets deal is almost through now, we factor in this into our estimates. Upwardly revising our EBITDA estimate by 11%/13% for FY20E/ FY21E mainly to factor in superior realisation and Century Assets deal, we maintain our BUY recommendation on the stock with a revised Target Price of Rs5,100 (from Rs5,040 earlier).
Soft Volume on Dismal Demand
A dismal demand environment resulted in mere 2% YoY growth in sales volume to 17.86mnT, missing our estimate of 18.5mn. Reported net revenue grew by ~15% YoY to Rs97.8bn mainly led by 13% YoY and 12% QoQ increase in average realisation. Notably, non-trade segment accounted for 34% of total quarterly sales volume. White cement sales volume (including wall putty) stood at 0.31mnT with revenue of Rs4.1bn, while RMC revenue came in at Rs5.8bn. Consolidated sales volume stood at 18.8mnT including UNCL’s 0.975mnT.
Operating Performance Exceeds Estimates on Stronger Realisation
While sales volume was a key quarterly setback, a higher-than-expected realisation was heartening, which led to higher-than-estimated operating performance. Reported EBITDA grew by a stellar 57% YoY and 15% QoQ to Rs25.5bn exceeding our estimate of Rs22.5bn. EBITDA/ tonne stood strong at Rs1,428 vs. Rs928 in 1QFY19 and Rs1,039 in 4QFY19. Looking ahead, we foresee UTCEM’s operating performance to remain strong with likelihood of favourable cost scenario, pick-up in capacity utilisation and firm realisation despite seasonal weakness.
Outlook & Valuation
Consistent approach to trim cost along with focus on improvement in RoCE by balance-sheet deleveraging augurs well for UTCEM. Going forward, we expect demand to recover post monsoon followed by increase in the government spending. Considering Century Assets deal is almost through now, we factor in this into our estimates. Increasing our EBITDA estimate by 11%/13% for FY20E/FY21E, mainly to factor in superior realisation and additional sales volume from Century Assets, we maintain our BUY recommendation on the stock with a revised Target Price of Rs5,100.
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