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Strong quarter; expansion spree to support growth

* Consolidated EBITDA declined 6% YoY/increased ~1% QoQ to Rs31bn in Q1FY23, 22%/16% above our and consensus estimates on better-than-expected realizations and lower-than-expected costs. Blended EBITDA/ton fell 20% YoY/increased 11% QoQ to Rs1,236 (Emkay est.: Rs1,020).

* In Phase-1, the company’s domestic grey cement capacity should increase to ~131mt by end-FY23 from 115mt currently. It may further increase to ~154mt by FY25E under Phase-II, which should propel volume growth. Besides, the company has also announced its aspirations to reach 200mt capacity by FY30E to support future volume growth and market share gains.

* Ultratech’s extensive pan-India market presence, premium brand positioning and focus on cost efficiency make it better-positioned to improve its margins in the medium term.

* Factoring in the Q1FY23 beat, we raise our FY23-25 EBITDA estimates by 2-4% and TP to Rs7,100 from Rs6,650 as we roll over to Sep’23E (from Jun’23E). Our DCF-based TP implies a 1-year forward EV/EBITDA of 13x. Maintain Buy.

India operations revenue rises 29% YoY to Rs145bn

Grey cement realization increased by 7% YoY and QoQ vs. our estimate of 5.5% QoQ. Management mentioned that the exit price in Jun’22 was 3-5% lower than the average price in Q1FY23. Other operating income increased 19% YoY (down 25% QoQ) to Rs1.6bn (Rs63/ton). RMC revenues grew by 77% YoY/6% QoQ to Rs9bn, while white cement revenues increased 38% YoY/declined 8% QoQ to Rs5bn.

Volumes in India operations increased 17%YoY/declined 9% QoQ to 24.1mt

with average capacity utilization of 83% in Q1FY23. India operations’ EBITDA/ton declined 22% YoY/increased 10% QoQ to Rs1,247 (Emkay est.: Rs1,052). Management expects cement demand to see an 8% CAGR in the next five years, with incremental demand to surpass capacity addition growth.

Consolidated cost/ton increased by 22% YoY/5% QoQ vs. our estimate of 7% QoQ increase.

Average fuel consumption cost rose 12% QoQ to US$184/ton in Q1. Management expects cost pressure to continue in the next 1-2 quarters. PAT fell 7% YoY to Rs15.8bn.

Phase-1 of the expansion plan has been revised from 19.5mt to 19.9mt

of which 3.2mt has already been commissioned and the balance will be commissioned in FY23E. The company expects to commission 1.3mt capacity in Q2; 9.6mt in Q3; and 5.8mt in Q4FY23. Post commissioning, Ultratech’s cement capacity will increase to 131.4mt by FY23E.

Finer details of Phase-2 expansion plan revealed.

The plan mentions cement capacity of 7.3mt/5.7mt/5.2mt/4.4mt in Central/South/East/North regions, apart from two bulk terminals of 1.8mt/1mt in East UP (Central)/Banglore (South). After commissioning, Ultratech’s domestic grey cement capacity will reach ~154mt by FY25E. Ultratech has also announced its aspiration to reach 200mt capacity by FY30E (can be advanced by a year) to support future volume growth and market share gains. Consolidated net debt increased by Rs16bn QoQ to Rs56bn as of Jun’22.

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