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Strong demand momentum sustains in Apr’23; prices stable

* UltraTech Cement (UTCEM)’s 4QFY23 operating performance was in line with consolidated EBITDA at INR33.2b (v/s est. INR33b) and EBITDA/t at INR1,049 (v/s est. INR1,043). Adj. Profit was at INR16.7b (v/s est. INR17.5b). Lower-than-estimated opex/t helped offset lower realization.

* Cement demand sustains in Apr’23 after a strong 4QFY23 and UTCEM aims to grow 4-5pp above industry in FY24E. Cement prices have remained stable in Apr’23. Expansion plans of UTCEM are on track and phase-2 expansion of 22.6mtpa will be commissioned by 1HFY26E.

* We largely retain our FY24/FY25 estimates and reiterate our BUY rating on the stock, given its: a) leadership position in the industry (with a market share of ~26% in FY23), b) robust expansion plans without leveraging the balance sheet, and c) structural cost improvement. We value UTCEM at 15.5x FY25E EV/EBITDA to arrive at our revised TP of INR8,600 (implying EV/t of USD200).

Grey cement realization flat QoQ; EBITDA/t came in at INR1,049

* Consolidated revenue/EBITDA/PAT stood at INR187b/INR33b/INR16.7b (up 18%/8%/13% YoY and down 2%/up 1%/down 5% v/s our estimates). Consolidated sales volume grew 14% YoY/22% QoQ to 31.7mt. RMC/white cement revenue grew 34%/22% YoY during the quarter.

* Grey cement realization was up 4.6% YoY (flat QoQ). Blended realization was up 3% YoY (down 2% QoQ). Opex/t rose 6% YoY (down 5% QoQ) due to 11%/5% increase in variable/freight costs. Higher opex/t led to 5% YoY drop in EBITDA/t and 1.7pp YoY drop in OPM in 4QFY23.

* In FY23, consolidated revenue grew 20% YoY, led by 12%/8% growth in sales volume/realization. However, cost pressures (Opex/t up 14% YoY) led to 8% YoY decline in EBITDA to INR106b. OPM contracted 5.1pp YoY to 16.8% and EBITDA/t declined 18% YoY to INR1,005. Adjusted profit was down 11% YoY to INR50.6b.

* Consolidated net debt stood at INR27b v/s INR77b in Dec’22. CFO stood at INR90.7b v/s INR92.8b in FY22. Capex was at INR62b v/s INR56b in FY22.

Highlights from the management commentary

* Fuel prices have been softening; however, given the volatility it is difficult to predict the movement. Average fuel cost was at INR2.5/Kcal v/s INR2.6/kcal in 3QFY23. Petcoke share was at 52% v/s 49%/43% in 4QFY22/3QFY23.

* Despite high demand in 4QFY23, cement prices remained stable. Cement prices should remain stable going ahead too. Industry does not have a strong pricing power given the lower utilization (pricing power comes with utilization levels of ~85%).

* The company has taken various initiatives such as digitization, optimizing lead distance, higher AFR usage, etc. to control its costs. In FY23, UTCEM spent INR12.8b towards these initiatives.

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