Powered by: Motilal Oswal
2025-01-31 12:15:21 pm | Source: Motilal Oswal Financial Services Ltd
Buy UltraTech Cement For Target Rs.13,800 by Motilal Oswal Financial Services Ltd
Buy UltraTech Cement For Target Rs.13,800 by Motilal Oswal Financial Services Ltd

Robust volume growth; positive demand outlook ahead

FY26E volume growth in double digits vs. 6-7% for the industry

* UltraTech Cement’s (UTCEM) 3QFY25 operating performance was in line with our estimate, with EBITDA standing at INR28.9b (declined 11% YoY). EBITDA/t stood at INR951 (-20% YoY; vs. est. INR925). OPM contracted 2.7pp YoY to ~17% (est. ~16%). Adj. PAT declined ~17% YoY to INR14.7b (+14% vs. our estimate, led by higher other income and lower effective tax rate).

* Management highlighted that its domestic grey cement capacity is expected to increase to ~185mtpa by end-FY25 (including ICEM and Kesoram). The company is expected to post double-digit volume growth in FY26 vs. industry growth at ~6-7% YoY. The capacity utilization is estimated at ~80-85% on expanded capacity in FY26. With the acquisition of ICEM and Kesoram, the company’s capacity share is likely to increase to ~30% in the South region. It believes both assets (ICEM and Kesoram) have scope for improvement in capacity utilization.

* We have incorporated ICEM in the company’s consolidated earnings estimates from 4QFY25 and Kesoram cement assets from FY26E. The stock trades at 20x/16x FY26E/FY27E EV/EBITDA. We value UTCEM at 20x FY27E EV/EBITDA and arrive at a TP of INR13,800. Reiterate BUY.

 

Sales volume rises 11% YoY; Opex/t down 5%/4% YoY/QoQ

* UTCEM’s consol. revenue/EBITDA/adj. PAT stood at INR171.9b/INR28.9b/ INR14.7b (+3%/-11%/-17% YoY and +1/+4%/+14% vs. our estimate). Consol. sales volume grew 11% YoY to 30.4mt. RMC revenue was up 14% YoY, while white cement/OOI declined ~1%/10% YoY.

* Blended realization declined 8% YoY (up 1% QoQ; in line). Opex/t was down 5% YoY (in line), led by 6%/5%/4% decline in other expenses/freight/variable costs. EBITDA/t declined 20% YoY to INR951. Depreciation/interest expenses rose 17%/46% YoY and other income increased 74% YoY.

* In 9MFY25, consol. revenue was up 1% YoY, while EBITDA/adj. PAT declined 10%/17% YoY. Volume grew ~7% YoY, while realization/t was down ~6%. EBITDA/t stood at INR881 (down 16% YoY). We estimate revenue/EBITDA/ PAT to increase 12%/9%/6% YoY in 4QFY25, aided by the inclusion of ICEM in consolidated estimates from 4QFY25. EBITDA/t is estimated at INR1,076 vs. INR1,173/ INR951 in 4QFY24/3QFY25.

 

Highlights from the management commentary

* Volume started to recover from Dec’24, and there has been a demand recovery across all sectors, including infrastructure, IHB, rural, and urban demand. Capacity utilization in the East region was below 70%, while it was at ~75% in other regions.

* The exit-Dec’24 price was marginally up (~1%) vs the 3QFY25 average. Further, in Jan’25, prices improved in the Central and West regions (1.5%).

* Consolidated net debt stood at INR161.6b after taking into consideration the cost of open offer (INR31.42b, which will be paid on the 4th/5th of Feb’25) and ICEM’s net debt (INR8.77b). Net debt is expected to peak in FY26 and start reducing thereafter.

 

Valuation and view

* UTCEM has reported strong volume growth of ~11% YoY vs. the estimated industry volume growth of ~5% in 3QFY25. There are signs of recovery in cement demand across all sectors including infrastructure, IHB, rural, and urban demand. Further, a good monsoon is estimated to drive higher demand from the rural segment in the coming months. The company’s profitability improvement QoQ was in line with expectations, led by cost reduction and improved realization.

* We estimate further improvement in profitability in 4QFY25, largely led by cost savings. We estimate consolidated EBITDA/t to improve to INR1,076 in 4QFY25 (while EBITDA/t ex-ICEM will improve to INR1,166) vs. INR951 in 3QFY25. We estimate a CAGR of 17%/28%/32% in consolidated revenue/EBITDA/adjusted PAT over FY25-FY27, aided by inorganic growth. UTCEM is estimated to continue to gain market share with its robust capacity expansion (including inorganic growth). We value the stock at 20x FY27E EV/EBITDA to arrive at our TP of INR13,800. We reiterate our BUY rating.

 

 

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412

Disclaimer: The content of this article is for informational purposes only and should not be considered financial or investment advice. Investments in financial markets are subject to market risks, and past performance is not indicative of future results. Readers are strongly advised to consult a licensed financial expert or advisor for tailored advice before making any investment decisions. The data and information presented in this article may not be accurate, comprehensive, or up-to-date. Readers should not rely solely on the content of this article for any current or future financial references. To Read Complete Disclaimer Click Here