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Our View:

* Ultratech delivered strong set of nos. for the quarter with volume/EBITDA growth of ~30%/43% y/y respectively. Q4FY21 performance was a healthy beat as compared to our estimates with volumes at 27.78 MT (+6% vs our est.) while EBITDA came in at Rs 36.9 bn (+14% vs our est). Although realization/te was in‐ line with our expectations, lower than expected fixed costs translated into operational outperformance. Along with robust P&L performance, company reduced net debt by Rs 105.3 bn during FY21.  

* Company is on its course to increase its capacity by ~19.5 MTPA over FY21‐ FY24E. However, despite the expected capex both on capacity addition and maintenance, we expect company’s balance sheet to further deleverage on account of strong OCF. We expect balance sheet to be nearly cash rich by FY23E. Due to strong positioning of balance sheet, company has increased dividend payout from 13% in FY18 to 20% in FY21 with renewed dividend policy of 15‐ 25% payout. Further, company would prefer to reserve cash on balance sheet for any inorganic opportunities in future. 

* Going ahead, although our volume estimates remain largely intact, we upgrade our EBITDA estimates by 14.3%/16.4% for FY22E/FY23E respectively. This is primarily on the back of 1. savings from the new MMDR act which would translate into Rs 2bn+ benefits, 2. revised guidance of company on fixed costs and 3. better pricing outlook as compared to our previous expectations. Accordingly, we factor in volume/EBITDA CAGR of 9.7%/7.3% over FY21‐FY23E.  

* We estimate deleveraging drive to continue with net debt/EBITDA set to decline from 0.66x to ~0.07x over FY21‐FY23E. After prolonged period of weak return ratios for the industry as a whole, we expect the same to pick up as we expect ROCE of Ultratech to improve from 15% currently to 18% by FY23E.     

* At CMP, Ultratech is trading at EV/EBITDA of ~14x on FY23E. We assign an EV/EBITDA multiple of 16x on FY23E and arrive at TP of Rs 7,540/share with potential upside of 16% (previous TP of Rs 6,373). We maintain our BUY rating on the stock.

* Key Risk: Further lockdowns across states due to second wave of COVID would hamper volume growth and timelines of capex commissioning

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