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Our view and valuation:

Prudent capital allocation; capacity expansion to drive growth while commissioning timelines need to monitored

* Company has laid down its capital allocation plans to take installed capacity from 31MT to 48.5MT in first leg of expansion by FY24 while has aspirational target to touch 110‐130MT capacity (greenfield/brownfield) by FY31 at 15%CAGR with judicious mix of debt and equity (with permissible 2x Net Debt/EBITDA). Company is expected to incur Capex of Rs67‐70bn to operationalize 48.5MT. Also aspires to become pure play 100% blended cement company in coming years, hence divested non‐core business (construction/building material and refractories).

* We have modeled expansion of incremental 10MT in our estimates (7.8MT of total 17.7MT already announced in Q4FY21) in our estimates. Of 7.8MT expansion 2.5MT of Bihar unit has been delayed by one year to FY24. While from incremental 10MT announced expansion 5.2MT debottlenecking of all plants to complete by FY23 while remaining in FY24. Hence, we made changes accordingly to our estimates and revenue/EBITDA for FY23E to inch up by 1.5%&3% while FY22E estimates to remain unaffected.

* Currently, at CMP of Rs2148/share, company trades at 12.1x of FY23E EV/EBITDA. On the back of higher demand outlook, consolidation in industry and better than expected profitability we assigned 15x FY23E EV/EBITDA which translates in price target of Rs2,665/share with potential upside of 24% upside (previous TP of Rs2,213/share). We maintain our BUY rating on stock.

Result Highlights:

* For quarter company delivered cement volumes of 4.89MT (‐24%QoQ/30%YoY) while was lower by 2% to our estimates. Blended cement NSR/te came in at Rs5284/te translating in 368/bag. Reported net sales of Rs25.9bn (‐ 17.7%QoQ/36.2%YoY) and beat our estimates by 3%.

* Company delivered strong EBITDA of Rs7.04bn (‐24%QoQ/30%YoY and ‐21.8% YSEC est.) on the back higher net realization and lower clinker production. Operating margins came in at 27.2% (288bps QoQ/‐521bps YoY) and reported EBITDA/te at Rs1432/te.  

* Adjusted PAT for the quarter came in at Rs2.66bn (‐57%QoQ/41%YoY)   

* Net Debt/EBITDA moved from 0.04x to 0.08x sequentially while gross debt reduced by Rs4.76bn

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