IGI Logo

Revenue & Volume reported strong YoY growth: UltraTech reported Q2FY24 revenue growth of 15.3% YoY but de-growth of 9.7% QoQ to Rs 16,012cr. Revenue is a mix of volume & realization wherein volume came at 26.7MnT, higher by 15.5% YoY but down by 10.9% QoQ. Its realization was flat YoY but was up by 1.3% sequentially to Rs 5,999/ton.

Margins trend was mixed: Despite increase in raw material cost by 23.6% YoY and decline in gross margin by 105bps YoY, UltraTech’s EBITDA for Q2FY24 improved by 36.8% YoY to Rs 2,551cr driven by strong volumes and moderate increase of 2% YoY in power & fuel cost aided growth. Thus, PAT too grew by 68.5% to Rs 1,280cr with margins at 8%, an improvement of 253bps YoY. On the contrary, Sequential numbers were not encouraging as Q2 is seasonally weak as compared to Q1. EBITDA de-grew by 16.3% and margins decreased by 126bps while PAT was down by 24.2% QoQ and margins declined by 153bps QoQ.

Healthy improvement in EBITDA/ton YoY: UltraTech’s overall cost witnessed decline with total cost/power & fuel/freight declined by 3%/11.7%/0.1% YoY. Also, as compared to last quarter not much increase was seen in the total cost as it just grew by 2.9% QoQ to Rs 5,044/ton while fuel cost/ton increased by 0.8% QoQ to Rs 1,643/ton and freight cost/ton was down by 3.9% QoQ to Rs 1,316/ton. So, overall better topline volumes and modest cost increase helped EBITDA/ton to improve by 18.4% YoY to Rs 956/ton but it declined by 6.1% QoQ.

Key Highlights: 1) Cement industry is the long term story. So, the company plans to start work for the 3rd phase of expansion due to continuous demand in the industry. 2) It commissioned cement capacity of 2.5MTPA, taking total India cement capacity to 132.45MTPA. The 2nd phase of expansion of 24.4MnT will lead to reaching capacity to 159.9MnT by June 2025. 3) All India prices are up by 7-8%, from June to September Exit prices were nearly up by 3-4% while Quarter average prices were marginally up by 1-1.5%. 4) Region wise strong traction is seen and prices are increasing higher as compared to June quarter. So, east and Maharashtra prices saw an increase of 7-8% while north prices were higher by 6-7%, South prices inched up by 5-6% while central prices were flat

Outlook & Valuations: We believe the demand for cement sector is expected to continue driven by increased construction activity in the housing and real-estate sector. Also, pre-election spending by the government on infrastructure and housing will drive growth. Additionally, UltraTech is aggressively expanding capacity and is in process of planning phase-3 expansion. Along with that improving utilization, increasing usage of green fuels and moderating RM cost will aid margin expansion. We are positive on the growth prospect of the company ahead and valuing it at EV/ EBITDA multiple of 16x FY25E. We have assigned is a bit higher valuation compared to its 10 years average multiple of 15x and also it is at a premium compared to peers given its leadership position, expansion plan and better financials. We maintain our Accumulate rating and a target price of Rs 9,247.  

Please refer disclaimer at https://www.religareonline.com/disclaimer

SEBI Registration number is INZ000174330