Buy UltraTech Cement Ltd For Target Rs. 8,600 - Yes Securities
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Revenue Inline, inflated cost dragged EBITDA
Our view
UTCEM’s upcoming capacities of 19.5MTPA would help to encash the strong prolonged cement demand and boost the volume growth over FY23‐24E. Thus, we believe UTCEM volume to grow at 10%CAGR over FY22‐23E. However, the inflating fuel/diesel cost is the major point of concern, but it is likely to pass on further in supply‐ chain with a potential price hikes.
Additionally, the increasing WHRS/green power and the higher blending ratio and improving efficiency would further aid to maintain the strong EBITDA/te of +Rs1,400/te in FY22/23E. Thus, over strong operating profit we expect a robust free cash flow generation of Rs150bn over FY22‐23E despite the ongoing CAPEX.
Result Highlights
* Revenue stood at Rs120bn (in‐line with YSEC est. of Rs121bn) up by 2% q/q and 16% y/y in this quarter, backed by strong increase in realization by 1% q/q and 8% y/y in Q2FY22.
* Despite the monsoon headwind, the strong demand momentum continued that led the consol. volume to 21.64MT flat q/q and 8% y/y in Q2FY22.
* EBITDA declined substantially by 18% q/q and remained flat y/y to Rs27bn led by the inflating cost up by 9% q/q and 21% y/y v/s our est. of Rs31bn (miss due to surge in other cost 20% q/q and 21% y/y) in Q2FY22.
* Substantial correction in EBITDA led the PAT decline by 23% q/q and 16% y/y to Rs13bn v/s YSEC est. of Rs15bn in Q2FY22.
* Reported EBTIDA/t stood at Rs1,321/te, while the blended EBITDA/te moderated to Rs1,254/te
Valuation
The Net Debt/EBITDA continue to remain at a bottom low of 0.47x in Q2FY22 v/s 0.44x in last quarter. At the CMP stock trades at 17/14.9x of EBITDA on FY22E/FY23E. Thus, we retain our BUY recommendation with a TP of Rs8,600 (unchanged), valuing the stock at 16x EV/EBITDA (unchanged) on FY23E on the back of strong realization, robust demand scenario, UTCEM’s ability to pass on inflating cost and capacity addition.
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