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Mixed revenue & volume growth: In Q1FY24, UltraTech posted revenue of Rs 17,737cr, wherein it grew by 17% YoY and declined by 5% QoQ. Its volume came in healthy at 30MnT as compared to 25MnT in Q1FY23 (growth of 19.6% YoY) and 31.7MnT in Q4FY23 (decline of 5.3% QoQ). Its realization was down by 2.2% YoY and up by 0.4% QoQ to Rs 5,920/ton.

Margins witnessed pressure: Despite an increase in gross profit of 14.8% YoY, UltraTech’s gross margin declined by 155bps as raw material cost was higher as compared to last year. Sequentially gross profit was down by 4.5% QoQ to Rs 14,793cr, down by 39bps. Further EBITDA too seen a de-growth of 1.5% YoY and 8.2% QoQ to Rs 3,049cr while margins remained under pressure to 17.2% as compared to 20.4% YoY (down 321bps) and 17.8% QoQ (down 61bps). So, EBITDA/ton decreased by 17.6% YoY and 3% QoQ to Rs 1,018/ton in Q1FY24. The impact was largely because of the rise in fuel & freight cost as well as other expenses as compared to last year while these costs were lower compared to last quarter but topline failed to support growth.

Concall highlights: 1) Capacity expansion plan is well on track and has completed Phase 1 expansion. It added 4.3MnT capacity in this quarter in West & North East areas. 2) Debt reduction plan is on cards and has reduced debt of Rs 233cr. 3) Spending of ~Rs 6,000-7,000cr on capex will continue for the next 2-3 years. 4) By FY26, they want to make use of 25% from WHRS & 35% from solar & wind which they believe would add substantially to their bottom line. 5) PET Coke prices were at USD 115.

Concall highlights: 1) Capacity expansion plan is well on track and has completed Phase 1 expansion. It added 4.3MnT capacity in this quarter in West & North East areas. 2) Debt reduction plan is on cards and has reduced debt of Rs 233cr. 3) Spending of ~Rs 6,000-7,000cr on capex will continue for the next 2-3 years. 4) By FY26, they want to make use of 25% from WHRS & 35% from solar & wind which they believe would add substantially to their bottom line. 5) PET Coke prices were at USD 115.

Outlook & Valuations: We believe cement sector will continue to see strong demand, also government support and its investment towards infrastructure and housing as well as capacity addition by players will drive growth. UltraTech will benefit from industry tailwinds given its leadership position and highest capacity as compared to its peers. Besides, its focus on product innovation, improving utilization, and focus on premium products bodes well for its future growth. Additionally, for margin improvement, its plan to increase the usage of green fuels and take cost measures. We are positive on the growth prospect of the company and expect its Revenue/EBITDA to grow at a 14.5%/26.9% CAGR over FY23-25E. We recommend an Accumulate rating and have assigned an EV/EBITDA multiple of 16x FY25E and have arrived at a revised target price upwards of Rs 9,247.

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