Buy UltraTech Cement Ltd For Target Rs.7,050 - Emkay Global
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Strong Q4 EBITDA beat, led by higher volumes and realization; Buy
* Consolidated Q4FY21 EBITDA of Rs37bn (+51% YoY) came in 7% above our estimate of Rs34.4bn (and 17% ahead of consensus: Rs31.5bn), driven by higher volumes (+3.7% ahead) and realization (+1.0%), thanks to favorable market-mix and company’s increasing focus on value-added products. Opex/ton was flat YoY and QoQ, and in line. Thus, blended EBITDA/ton increased by 17% YoY to Rs1,328/ton (our est: Rs1,285). Adj. PAT came in 5% lower, owing to lower interest/other income.
* We broadly maintain our FY22 and FY23 estimates, baking in 11% EBITDA CAGR.
* We expect UTCEM’s RoIC to increase to a sustainable 20%+ level within 5-6 years (vs 12% in the past decade), driven by rising utilization levels, improving margins on steady price growth, cost optimization and operating leverage. We have a Buy rating with a DCF-derived TP of Rs7,050 (Jun’22E), implying 14x forward EV/EBITDA
* Earnings conf. call is scheduled for 10th May, 10.00 a.m
* India operations revenue increased 35% YoY to Rs138bn (Emkay est: Rs132bn). Grey cement realization rose 4% YoY/2% QoQ vs. our estimate of broadly flat realization, on favorable market mix and increasing focus on value-added products. Volumes increased 30% YoY to 26.6mt (Emkay est.: 25.7mt), with effective utilization increasing 1,300bps YoY to 93% in Q4FY21. Blended EBITDA/ton increased 17% YoY/2% QoQ to Rs1,356/ton (Emkay est.: Rs1,318). Consolidated adjusted PAT increased 60% YoY to Rs18bn.
* Consolidated FCF generation stood at Rs91bn in FY21, including working capital release Rs23bn and capex of Rs18bn. Consolidated net debt declined by Rs27bn QoQ (Rs102bn YoY) to Rs67bn as of Mar’21, with net debt-to-EBITDA standing at 0.55x. We estimate average FCF of Rs58bn p.a. over FY21-23E and UTCEM to be net-debt-free by FY23E. It may also allow UTCEM to pursue higher growth via both organic and inorganic routes.
* UTCEM would be adding ~20mt grinding capacity (18% of domestic capacities), along with 11.4mt clinker, at a capex outlay of Rs65bn. These capacities will be created in the fast-growing North, East and Central regions. Most of the orders for equipment have been placed and civil work has also commenced at these locations. Commercial production is expected happen in a phased manner by FY23E.
* EBITDA CAGR at 11% over FY21-23E. We expect blended EBITDA/ton to broadly remain stable over FY21-23E after witnessing a 50% increase in the past two years.
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