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EBITDA/te inches to highest-ever Rs1,600/te

UltraTech Cement’s (UTCEM) Q1FY22 consolidated EBITDA at Rs33.1bn (up 59% YoY) was ~10% higher than consensus estimates. India operations grey cement realisation surprised increasing 7.6% QoQ resulting in EBITDA/te rising 16% QoQ and 9% YoY to highest-ever Rs1,590/te, despite sharp cost increases. UTCEM continues to expect a strong demand upcycle over the next 3-5yrs with all demand drivers looking upbeat.

Management expects to improve margins further given incremental demand is likely to exceed incremental supply and also led by various cost efficiency initiatives. We believe UTCEM is likely to rerate as it continues to gain market share with improved profitability / RoCEs and turn net debt free by FY22E. We raise our ‘ahead of consensus’ FY22-23E EBITDA by 3% and increase target price to Rs8,600/share (earlier Rs8,000) based on 15xJun’23E EV/E on quarterly rollover. Maintain BUY. Key risks: Lower demand / pricing.

* India operations revenue grew 56% YoY to Rs113bn on a low base. Volumes increased 47% YoY on a low base, while it declined 23% QoQ due to resurgence of covid cases to 20.25mnte implying 73% utilisation. Company operated at >95% utilisation in East, 75% in North, 70-75% in Central and West regions and >50% in South. Grey cement realisation rose sharply 7.6% QoQ (and 2.7% YoY) to Rs5,150/te led by 7-10% QoQ price hikes in East, South and West regions and 3-6% QoQ increase in North and Central regions. RMC revenue declined 24% QoQ to Rs5.1bn; while white-cement/putty revenue declined 35% QoQ at Rs3.6bn.

* India operations EBITDA increased 61% YoY to Rs32.6bn with EBITDA/te increasing 16% QoQ and 9% YoY at Rs1,590/te. Total costs/te increase was restricted to 2.5% QoQ and 4.5% YoY to Rs3,987/te as sharp increase in fuel and diesel prices was offset by improved operating efficiencies and fuel mix optimisation. Other income was lower at Rs2.0bn vs Rs2.8bn YoY and recurring PAT was up 80% YoY to Rs16.8bn.

* Net debt declined by Rs7.3bn QoQ to Rs60bn: Net debt/EBITDA is less than 0.5x at the end of Q1FY22 with a reduction of Rs7.3bn in net debt QoQ. Working capital went up by Rs6-7bn QoQ on account of inventory build-up pre-monsoon. Capex in Q1FY22 stood at Rs10bn. At the end of Q1FY22, gross debt stood at Rs190bn and treasuries stood at Rs130bn. Additionally, UTCEM prepaid a long-term loan of Rs50bn on 22nd July 2021.

* Expansion plans on track. Announced expansion plan of 19.5mnte, which commenced towards the end of CY20 remains on track and is likely to be completed by FY23-end. Out of which, 3.2mnte capacity in East and Central region is expected to commission in Q2FY22. Given >70% of these expansions are brownfield with average capex of US$60/te, these assets are expected to enjoy healthy >15% RoCE.

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