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Revenue driven by volumes:

UltraTech posted strong sales growth of 19.5% YoY and 11.7% QoQ driven mainly by sales volumes of 25.9MT, up by 13% YoY and 12% QoQ. Its blended realization was flat QoQ at Rs 6,002/ton but was up by 6.8% YoY. Going ahead, volumes will continue to grow driven by strong demand, improving sentiments from rural, capacity addition and improving utilization levels. Also, improving demand from infrastructure and urban housing space would support growth.

YoY performance muted but posted better QoQ margins:

UltraTech total expenditure rose by 24.8% YoY and 9.6% QoQ because of high power & fuel (up by 51.3% YoY and 13.4% QoQ) and logistic cost (up by 19.5% YoY and 14.3% QoQ). This cost impacted YoY performance as EBITDA and PAT margins witnessed a decline of 358bps and 632bps YoY while QoQ EBITDA and PAT margins saw improvement of 163bps and 138bps driven by strong top-line volume growth. EBITDA/ton improved by 11.9% QoQ but down by 13.7% YoY at Rs 903/ton in Q3FY23. Further, management expects power and fuel cost to be range bound and EBITDA/ton to improve to Rs 1,000+/ton driven by top line growth, premiumization and better utilization.

Concall highlights:

1) Management is positive on future growth prospects and believes that demand would be strongly driven largely by government focus on infrastructure and urban housing.

2) On cost, fuel prices remain elevated and show no signs of easing in the near future.

3) Cement prices to remain flat in Q4.

4) Fuel inventory to be 45-50 days.

5) Plans to take EBITDA/ton at a four digit mark of Rs 1,000+/ton from Rs 903/ton.

6) UltraTech has plans to focus on increasing usage of green mix to 50% by 2030.

Capacity expansion plans

1) The company has commissioned cement capacity of 5.5 MTPA and would add more 10 MTPA capacity to reach 130Mnt of Phase 1.

2) Phase 2 expansion of 22.6 MTPA announced in Q1FY23 has started in full swing and production to start in FY25.

3) Capex spends of ~Rs 6000-7000cr per annum.

Outlook & Valuations:

We believe UltraTech being a leader will benefit from positive industry tailwinds and capacity expansion which would aid in better volume and revenue growth. Further, the company’s plan is to earn and improve margins by focusing on better product mix, increase in usage of green power (to 50% by 2030) and improving realization. However, management expects fuel cost to not ease much so how input cost pans out will be crucial to watch out for in the coming quarters. On the financial front, we expect its revenue/EBITDA/PAT to grow at a 17.9%/16.9%/22.5% CAGR over FY22-25E. We are positive on the growth prospects of the company but high cost may impact margins and profitability so our view remains a bit cautious. Thus, we have assigned a HOLD rating with a target price of Rs 7,438.

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