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* UTCEM’s operating performance was below our estimates due to higherthan-estimated opex (freight and other expenses). EBITDA stood at INR30.5b (est. INR33b) and EBITDA/t came in at INR1,018 (est. INR1,101). Profit was at INR17b (in line), led by lower tax rates.

* Cement demand remains strong and industry volume growth should be in double digits in FY24. There have been some disruptions due to erratic monsoons recently. There was a marginal price increase in North and West markets in Jul’23, while prices in the South and East markets remained stable. Spot prices of pet coke will be reflected only after six months and a reduction in fuel prices should also benefit the industry going forward.

* We cut EPS estimates by 3% for FY24/FY25 (each) due to a miss in 1Q. We maintain our BUY rating on the stock, given its: a) leadership position in the industry, b) robust expansion plans without leveraging the balance sheet, and c) structural cost improvement measures. We value UTCEM at 16x FY25E EV/EBITDA to arrive at our revised TP of INR9,085.

Grey cement realization declined 3% YoY; EBITDA/t stood at INR1,018

* Consolidated revenue/EBITDA/PAT stood at INR177b/INR30.5b/INR17b (up 17%/down 1%/ up 6% YoY and up 1%/down 8%/in line vs. estimates). Consolidated sales volume grew 20% YoY to 30mt. RMC/white cement revenue grew 37%/18% YoY during the quarter.

* Grey cement realization was down 3% YoY. Blended realization was down 2% YoY (+1% vs. estimates). Opex/t was up 2% YoY (+3% from estimates) due to a 4% increase in variable/freight costs (each). Other expenses and employee cost/t declined 7% YoY (each), led by higher volumes. EBITDA/t declined 18% YoY and OPM contracted 3.2pp YoY to 17% in 1QFY24.

* Consolidated net debt stood at INR25b vs. INR27b in Mar’23. Capex stood at INR18b and is estimated to be at INR60-70b in FY24.

Highlights from the management commentary

* Fuel consumption cost was USD178/t vs. USD194 in 4Q and spot price was USD115/t. Average fuel cost was INR2.34/kcal vs. INR2.5 in 4Q. Fuel costs would fall 25-30% YoY in FY24 if pet coke prices sustain at current levels.

* The clinker-to-cement conversion (C:C) ratio improved 3% YoY and UTCEM achieved the highest-ever C:C ratio of 1.44x. An improvement in clinker factor by 0.04x will generate additional volume of 3mtpa per annum.

* Lead distance (including inter-clinker transportation) stood at 410km. Lead distance for outward dispatches is only 270km vs. 281km in 4Q.

Valuation and view

* We estimate a 10% CAGR in UTCEM’s consolidated volume over FY23-25 and EBITDA/t at INR1,148/INR1,217 in FY24/25 (vs. INR1,005 in FY23).

* The stock trades at 17x/14.4x FY24E/FY25E EV/EBITDA (vs. its 10-year oneyear average EV/EBITDA of 15.7x). We value UTCEM at 16x FY25E EV/EBITDA to arrive at a revised TP of INR9,085. Retain BUY rating on the stock.

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