Published on 14/09/2019 10:07:19 AM | Source: ICICI Securities Ltd

Buy UltraTech Cement Ltd For Target Rs.5,040 - ICICI Securities

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EBITDA/te crosses Rs1,400/te; upgrades to continue

UltraTech Cement (UTCEM)’s Q1FY20 standalone EBITDA (pre-Ind-AS 116 impact) increased 55% YoY to Rs25.2bn, broadly in-line with our estimates; however, ~5% above consensus. India operations EBITDA/te (which consolidates acquisitions of JPA and Binani) surprised positively increasing 58% YoY to an all-time high of Rs1,466/te (I-Sec: Rs1,398/te) despite incurring higher maintenance shutdown cost of Rs45/te. Since the acquisition of Century Textiles’ cement assets (CENT) would be consolidated for full year FY20 now vs earlier expectation of H2FY20, we raise our FY20 revenue, EBITDA, PAT by 4-7%. We broadly maintain our FY21E EBITDA; however factoring higher debt, we reduce our target price to Rs5,040/share (earlier: Rs5,200/share) based on 14x FY21E EV/E. Maintain BUY.

* Standalone revenue increased 16% YoY to Rs96.5bn (I-Sec: Rs95.1bn). Total volumes grew only 2% YoY (I-Sec: 4%) to 17.86mnte and adjusting for Binani, volumes likely decline ~3.5% YoY (in-line with industry as per management). Management remains optimistic with 6% industry demand growth in FY20 led by pickup in government spends during H2FY20. Grey cement realisation increased surprised positively with 12% QoQ / 14% YoY increase to Rs4,935/te. Jun’19 exit prices are ~3% lower than average Q1FY20 prices, as per the management.

* Standalone EBITDA (pre-Ind-AS 116 impact) increased 55% YoY to Rs25.2bn (I-Sec: Rs24.8bn) led by better realisations. Management expects the favourable cost environment to sustain and benefit of the recent fall in input prices to flow in coming quarters. Other expenses/te increased 19% YoY/ 16% QoQ owing to preponement of annual kiln shutdown having an impact of Rs45/te (~Rs800mn) and negative operating leverage (Rs45/te) on lower volumes. India operations EBITDA/te increased 58% YoY to Rs1,466/te (I-Sec:1,398/te).

* Consolidated revenue increased 2% YoY to Rs100bn (I-Sec: Rs99bn). Total volumes increased 2% YoY to 18.8mnte. Consolidated EBITDA (pre-Ind-AS 116 impact) grew 58% YoY to Rs26.6bn with EBITDA/te increasing 55% YoY to Rs1,417/te (I-Sec: Rs1,364/te).

* UNCL (erstwhile Binani) posted sharp improvement in profitability with EBITDA/te of Rs1,200/te (vs Rs830/te in Q4FY19) with cost reduction of Rs100/te on QoQ basis and sharp price hikes in Q1FY20. Average utilisation stood at 60%, as the company took major maintenance shutdown in Q1FY20. Besides, management intends to monetise UNCL’s non-core assets before Mar’20. JPA assets operated at 68% in Q1FY20 with assets profitability almost at par with the relevant markets.

* Consolidated net debt declined Rs10bn QoQ to Rs186bn as of Jun’19-end. However, EBITDA-to-cash conversion ratio was low at ~38% owing to pre-monsoon working capital requirement. Management expects net debt to EBITDA of <2x by Mar’20 from 2.24x now, despite Rs30bn outflow on CENT’s acquisition.


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