IGI Logo

Steady quarter; on a strong growth path

Ultratech Cement (UTCEM) delivered steady performance in Q1FY22. Realization improved ~8% QoQ, helped by pan-India leadership and higher trade sales (70% vs 67% in Q4FY21). Volume, however, declined 22% to ~20m tonnes. Cost was contained, with 2.4% inflation QoQ. EBITDA fell 10% QoQ (grew 62% YoY) to Rs31.7bn and EBITDA margin expanded 230bp to 27.6%. Improving balance sheet health (improved cash flow with cushion) continues to add comfort. We have raised our EBITDA estimates to Rs132bn for FY22 and Rs154bn for FY23, and our EPS estimates to Rs230 for FY22 and Rs282 for FY23 to factor in better macroeconomic conditions. We assign 15.5x FY23E EV/EBITDA to arrive at a revised target price of Rs8,180. Maintain BUY.

Volumes impacted, though realization growth helped

UTCEM’s grey cement volume declined ~22% QoQ (grew ~45% YoY) to 20mtonnesin Q1FY22. Revenue declined 18% QoQ (grew 56% YoY) to Rs114.8bn, as realization grew ~7% QoQ (5% YoY) to Rs5,276/tonne (incentive receipt of Rs700mn). Utilization declined to 73% (was highest in June at 74%) from 91% in Q4FY21. Contribution from white cement and ready mix concrete (RMC) was lower. The trade:non-trade sales mix was at 70:30 (67:33 in Q4FY21).

Cost inflation offsets realization gains; yet EBITDA margins stronger

Despite optimized fuel mix, continuous rise in input costs led overall cost to increase by 2.4% QoQ (5.5% YoY) to Rs4,159/tonne. Transportation cost was up 4% QoQ (14% YoY) at Rs1,313/tonne on account of rising diesel prices and increased lead distance (430km). Energy cost (raw material adjusted) fell 2% QoQ (up 4% YoY) due to compensation from lower inventory-adjusted raw material cost. Other expenses fell correspondingly less than volume by 18% QoQ. Effectively, EBITDA/tonne increased ~16% QoQ (12% QoQ) to Rs1,588 and EBITDA margin expanded 240bp QoQ to 27.6%, aided by higher realization.

Capital expenditure plans

The 12.8mn-tonne internally-funded capacity addition (clinker units at Pali and Hirmi) is expected to be commissioned by the end of FY23, keeping UTCEM on a strong growth trajectory. This is besides the Dalla clinker unit (2.2mn tonnes) and grinding units in Cuttack, West Bengal and Bihar, which will commission in FY22. Major capex will be funded internally.

Earnings, valuation and risks – remains the safest bet, maintain BUY

UTCEM’s focus on improving balance sheet health continues, with war chest of Rs100bn for any meaningful growth opportunities. We assign 15.5x FY23E EV/EBITDA (earlier 14x) to arrive at a revised target price of Rs8,180 (earlier Rs6,734). Pan-India presence, capacity leadership position in all regions, expected sustainability of healthy EBITDA margins, faster than expected improvement in balance sheet add comfort. Maintain BUY. Key risks: Faster than expected fuel cost inflation/realization loss.

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer