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Result Synopsis

UltraTech Cement (UTCEM) reported revenue/EBITDA growth of +15/37% y/y supported by +16% y/y volume growth in Q2FY24. Surprisingly, the NSR was flat y/y and a 3% y/y decline in total cost/te resulted in EBITDA/te of Rs956, up by +18 y/y during the quarter. Adj. PAT grew by +70% y/y to Rs12.8bn on account of healthy profitability. As of Q2FY24, UTCEM’s total grey cement capacity in India reached 132.5MTPA with its phase-I expansion, still utilization is at ~83% in H1FY24. Therefore, to maintain the production headroom and retain the market share, UTCEM plans to add 4MPTA through debottlenecking. The phase-II expansion of 24.4MTPA and the pending debottlenecking of 2.8MTPA will enhance the console cement capacity to 165MTPA by FY25E (v/s 137.9MTPA as of Q2FY24). UTCEM further aims to improve the C:C ratio (currently 1.44x) to generate additional volumes, as a result we believe UTCEM to deliver overall volume growth of ~10% CAGR over FY24-26E.

We continue to like UTCEM for its market leadership with a +20% share across India with robust growth plans and aggressive green energy investment for improving its green power share, which is supported by Strong B/S. Ongoing Phase-II expansion of 24.4MTPA will ensure UTCEM capacity growth rate of ~8% CAGR above the industry average of 5% CAGR over FY24-26E. Management aspires to improve its green energy share to ~60% by FY26E with a WHRS/Renewable combined capacity of 1.25GW (v/s currently 22%) will be margin accretive in the long run. Supported by healthy profitability (est. EBITDA of Rs1150-1200/te for FY24-26E), we expect a free cash flow generation of Rs150bn post the CAPEX outlay of Rs180bn over FY24-26E. Additionally, it will further aid UTCEM to fund its future expansion target of 200MTPA by FY30. At CMP, stock trades at 16/14x EV/EBITDA on FY25/26. We rolled forward to FY26 estimate and arrived at TP of Rs9572 with an ADD rating, valuing the stock at 16x EV/EBITDA on FY26E. 

Result Highlights

* Reported volume of 26.7MT up by +16% y/y and declined by 11% q/q in Q2FY24.

* Surprisingly, NSR came flat y/y (2% above YSECe) and +1% q/q, translating to revenue of Rs160bn (v/s YSECe 155bn) up by +15% y/y.

* Total cost/te declined by 3% y/y on account of eased fuel cost, although RM cost/te surged by +7% y/y because of increase in fly ash, slag & gypsum prices.

* Additionally, total cost/te increased by 3% q/q due to higher plant maintenance and increase in employee costs coupled with seasonal negative operating leverage.

* EBITDA came in at Rs25.5bn (Rs956/te +18% y/y) up by +37% y/y on account of strong volume and eased cost with sustained NSR.

* Adj. PAT came in-line to Rs12.8bn (+70% y/y) on account of healthy profitability.

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