IGI Logo

Lowest EBITDA/mt since Sep-13; 2H outlook promising

Ultratech reported weak set of results as reported EBITDA came in 4% below our estimate owing to higher costs. EBITDA/mt came in at Rs725 which is lowest since Sep-13 indicating pricing pressure resulting from competition. However, 2HFY25 outlook for both demand and pricing looks promising as government spending is set to pick up and pricing is showing signs of firming up. The capex plans of the company are on track and it is set to cross 200mn mt capacity by FY27. The company’s efficiency improvement programme is also ongoing which will result in Rs250-300/mt cost reduction by FY27. Given the weak 1HFY25 owing to elections and extended monsoon, we have cut our FY25 EBITDA estimates by 18%. However, we believe recovery is on the cards as both demand and pricing is expected to improve in 2HFY25. We have rolled our valuation forward to Sep26 from March26 and continue to value UTCEM based on 17x EV/EBITDA to arrive at our revise TP of Rs12,000. Upgrade to ADD from Reduce post recent correction in the stock. 2QFY25 result highlights Ultratech reported revenue of Rs156bn, down 2.4% YoY and 7% ahead of our estimates. Volumes at 27.84mn were up 4% YoY against our expectation of 2% decline. Average realizations declined by 6.4% YoY and 0.7% QoQ, largely in-line. Domestic grey cement realisation declined 8.4% YoY and 2.9% QoQ. Operating costs/mt at Rs4,891 is up 4% QoQ and 2% ahead of our estimate resulting in weak EBITDA and margin performance. Higher other expenses and employee costs resulted in marginal increase in costs. Absolute EBITDA came in at Rs20.2bn, down 21% YoY and 4% below our expectation. EBITDA/mt came in at Rs725 against our expectation of Rs802. This is the lowest EBITDA/mt reported by Ultratech since Sep-2013 (45 quarters). PAT at Rs8.25bn is down 36% YoY and is just 3% below our estimate.

Efficiency improvement programme on track

The company expects to achieve the improvement in costs through efficiency improvement programme which includes 1) WHRS capacity 278MW in will reach 450MW, 2) RE capacity at 612MW in FY24, reached 681, will reach 1.8GW by FY27, 3) CC ratio from 1.44 to 1.54 by FY27, 4) AFR from 5% to 15% by FY27, 5) Lead distance 360kms by FY27 and 6) operating leverage.

Capex plans also on track

The company is targeting capacity of ~200mn mt by FY27 through 1) ongoing phase 2 expansion of 24.2mn mt, 2) phase 3 expansion of 22 mn mt, 3) acquisition of Kesoram and India cement assets, and 4) further brownfield expansion. We are building in 9.9% volume CAGR for the company over FY24-27E.

Upgrade to ADD rating with revised TP of Rs12,000

We believe Ultratech will continue to deliver industry leading performance with superior volume growth and continuous improvement in efficiency. We are building in 11%/18% revenue/EBITDA CAGR for the company over FY24-27E. We believe Ultratech will achieve significant scale and reach by FY27 which will be unmatched by peers giving the company a significant competitive advantage. We value the stock based on17x Sep26 EV/EBITAD to arrive at our TP of Rs12,000. Increased competitive intensity and sustained weak demand remain key downside risks.

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

SEBI Registration No.:- INZ000205331