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Margin set to expand as input costs decline

Ultratech Cement Ltd. is the largest cement manufacturer in India, and is involved in production of grey cement, white cement, and Ready-Mix Concrete (RMC).

* Consolidated revenue in Q4FY23 grew a significant 18.4% YoY (+20.2% QoQ) to Rs. 18,662cr, led by healthy demand and volume growth.

* EBITDA margin expanded 260bps QoQ to 18.5% due to a decline in input costs and operational efficiency. However, YoY, margin declined as costs remained at elevated levels.

* UltraTech posted robust financial results driven by solid demand and volume growth. The company’s margin also improved due to a decline in input costs. With a strong outlook for the cement industry and the company’s effort to enhance operational efficiencies, UltraTech is poised for continued growth and profitability. We, therefore, reiterate our BUY rating on the stock with a revised target price of Rs. 8,760 based on 16x FY25E EV/EBITDA.

Sustained strong demand for its products

Revenue in Q4FY23 grew a significant 18.4% YoY to Rs. 18,662cr on solid demand supported by a 14% YoY increase in consolidated volume growth to 31.7 million tonne (MT). At the same time, domestic cement volume increased 15% YoY to 30.5MT with 95% utilisation (vs. 90% a year ago). Domestic grey cement revenue grew 20% YoY to Rs. 16,039cr, and RMC revenue rose 34% YoY to Rs. 1,138cr. During the year, the company added 54 new RMC plants. Premium products accounted for 20.4% of sales volume (+26% YoY). Demand for cement products remained strong across regions, mainly driven by the residential and commercial segments. The infrastructure segment saw minimal growth due to labour shortages during the harvest season.

Key concall highlights

• UltraTech’s capex in FY23 stood at ~Rs. 6,000cr. It expects to incur Rs. 12,800cr for the phase-2 expansion for the next two years.

• In Q4FY23, UltraTech commissioned the following cement capacities: 1.3 mtpa brownfield grinding cement unit at Hirmi, Chhattisgarh, 2.8 mtpa greenfield grinding cement unit at Cuttack and 1.5 mtpa brownfield grinding cement unit in Jharsuguda. These increased its grey cement capacity to ~126.95 mtpa.

• During the year, the waste heat recovery system (WHRS) capacity of the company reached 210 megawatts (MW), and renewable power capacity reached 345 MW.

Decline in input costs leads to steady increase in margins

EBITDA in Q4FY23 was Rs. 3,444cr (+8.8% YoY, +39.9% QoQ). EBITDA margin stood at 18.5% (-160bps YoY), up 260bps QoQ due to sequential downward trend in energy and fuel costs. Blended fuel consumption (CV: 7500) was ~USD 194/t against USD 200/t in Q3 FY23 and is expected to decline further in the coming quarters. Although the operating cash flow (OCF) declined marginally by 0.8% YoY to Rs 9,718cr, OCF/EBITDA margin increased by 600bps YoY to 83% in FY23. PAT fell 36.4% YoY to Rs 1,666cr (+57.4% QoQ), resulting in a margin of 8.9% (-770bps YoY, +210bps QoQ).

Valuation

The positive outlook for the infrastructure segment and upcoming elections provides additional tailwinds for the company’s growth. With expectations of further cost reduction in the near future and efficient cash flow management, margin is expected to improve, leading to better profitability. Overall, UltraTech has a solid track record and has been gaining market share. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 8,760 based on 16x FY25E EV/EBITDA.

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