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Market share gains continue

Expansions provide strong growth visibility

* UTCEM’s 4QFY21 result was impressive on multiple counts. While volume growth remained above industry, EBITDA/unit was strong at INR1,328/t (+18% YoY), driving 51% YoY growth in EBITDA. Net debt fell INR27b QoQ to INR67.2b (0.55x TTM EBITDA).

* It has grown its market share further due to high clinker availability, which helped it meet strong demand for OPC cement in 4QFY21. Its India volumes grew 30%/5% YoY in 4Q/FY21, much higher than the 24%/24%/22% growth reported by DALBHARA/ACEM/ACC.

* Market share gains should continue, aided by the ongoing 20mtpa expansion program, which should drive 11% volume CAGR over FY21-24E.

* While we expect industry volumes to decline by 25-30% in the near term due to COVID-related lockdowns, the same should be partly compensated by improved margins as prices have been strong. Our earnings estimates for UTCEM for FY22-23E are therefore broadly unchanged. We estimate 19% EPS CAGR. The company remains our top largecap pick in the sector.

Lower cost drives 10% beat on EBITDA (up 51% YoY)

* Consolidated revenue/EBITDA/adjusted PAT rose 33%/51%/57% YoY to INR144.1b/INR36.9b/INR18.1b, 4%/10%/4% higher than our estimate.

* Consolidated volumes rose 28% YoY to 27.78mt (v/s our expectation of 27mt), with India volumes up 30% YoY. EBITDA/t surprised positively at INR1,328/t (+18% YoY, +2% QoQ) v/s our estimate of INR1,241/t.

* While blended realization rose 4% YoY to INR5,186/t (+1% QoQ), cost surprised positively and was flat YoY at INR3,857/t (+1% QoQ). Freight and fuel cost were under control, despite the sharp rise in diesel and petcoke prices.

* Other income fell 70% YoY to INR603m due to a rise in bond yields in 4QFY21. Finance cost fell 25% YoY to INR3.8b on a sharp reduction in debt.

* Consolidated net debt fell further by INR27b QoQ to INR67.2b (implying 0.55x TTM EBITDA). Consolidated net debt declined INR102.6b in FY21.

* FY21 consolidated revenue/EBITDA/adjusted PAT rose 5%/23%/31% YoY to INR447.3b/INR115.7b/INR55b, while OCF/capex/FCF stood at INR125b/INR18.4b/INR106.7b (v/s INR89.7b/INR16.9b/INR72.9b in FY20).

* UTCEM has announced a higher dividend of INR37/share (20% payout).

Growth at reasonable valuations – 19% EPS CAGR over FY21-23E

* UTCEM’s strong pan-India distribution network and preferred supplier status for key Infrastructure projects makes its well suited to tap into expected growth in both Retail and Institutional (non-trade) Cement demand in India.

* While it is ramping up its under-utilized acquired capacities, it also has a strong pipeline of expansion projects that offers strong growth visibility.

* We estimate 11%/19% CAGR in consolidated EBITDA/PAT over FY21-23E, driven by 11% CAGR in volumes, lower operating costs, and lower interest costs.

* The valuation is reasonable at 12.9x FY23E EV/EBITDA – a 10% discount to its last five years’ average. We value UTCEM at 16x FY23E EV/EBITDA to arrive at a TP of INR8,050. Reiterate Buy.

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