IGI Logo

UTCEM’s consolidated Q1FY25 volumes were INR31.95mnt, down 8.9% QoQ but up 6.6% YoY. Sales volumes aligned with our estimates, resulting in revenues of INR180.7bn, a decrease of 11.5% QoQ but an increase of 1.9% YoY. However, cement demand was affected by elections and floods. UltraTech achieved 85% capacity utilization for Q1FY25. EBITDA/t was INR951/t, down 18.9% QoQ and 6.5% YoY due to lower realization. PAT for the quarter stood at INR16.9bn, down 24.9% QoQ but up 0.3% YoY. EPS for the quarter was INR58.9.

*  Revised cost reduction guidance 300/t in next 3 years: The company aims to achieve cost savings of INR300/t over the next three years, with detailed guidance including INR80/t from increasing green power share, INR30/t from higher alternative fuel share, INR60/t from reducing the clinker factor and increasing blended cement share, INR100/t from logistics cost savings through larger operations and optimization, and INR40/t from other operational efficiencies including positive operating leverage. Additionally, a 15km reduction in lead distance compared to the previous quarter has resulted in a INR45/t logistics cost benefit. Management anticipates further reductions in lead distance as the plant network grows from 59 to over 70 locations by the end of the current growth phase

*  Robust Capex & Expansion plans on track: The company plans to allocate approximately INR90,000mn for Capex over the current and upcoming fiscal years. This budget includes growth Capex, routine Capex, and maintenance Capex. Projections indicate a significant increase in the company's grey cement capacity to 157.0mtpa by the estimated FY25E. UltraTech has a robust capacity expansion plan in the East and South. Currently, the total capacity in the East stands at 27.6mtpa, with plans to increase it to 41mtpa by FY27E. The capacity in the South stands at 20.5mtpa, with plans to increase it to 35.5mtpa by FY27E. A brownfield expansion at Arakkonam, Tamil Nadu, with a capacity of 1.2mtpa, is expected to be commissioned in Q3FY25E. Another brownfield expansion at Maihar, MP, with a capacity of 4.5mtpa, is expected to be commissioned in Q4FY25E. Additionally, the company plans to add 16.2mtpa of capacity in FY25E, 11.8mtpa in FY26E, and 20.1mtpa in FY27E, bringing the total capacity to 183.5mtpa by FY27E.

*  Expanding footprint in South: UltraTech Cement has made a ~23% financial investment in India Cements at INR 267 per share, valuing India Cements at approximately $90 per tonne. The acquisition of a stake in India Cements by UltraTech Cement presents multiple strategic synergies, including increased market share and geographical diversification, particularly in South India. This consolidation can drive significant operational efficiencies through economies of scale, optimized supply chains, and reduced overhead costs. Financially, the combined entity will benefit from improved metrics and greater bargaining power. . These significant acquisitions by leading cement group may lead to the deferment of greenfield capacities, positively affecting demand-supply dynamics. Additionally, this may result in better pricing discipline moving forward.

Valuation and Outlook: In anticipation of increased demand, Ultratech is poised for growth, spurred by the government's emphasis on infrastructure investment. The company plans to seize this opportunity by embarking on ambitious capacity expansion projects, capitalizing on the strong demand environment, and expecting substantial volume increases. Additionally, Ultratech is committed to cost optimization and is strategically positioned to gain a larger market share. Management has projected double-digit volume growth for FY25E. As per our FY26E estimates, we are expecting Revenue/EBITDA/PAT to grow at a CAGR of 10.5%/17.3%/18.6% respectively over FY24-FY26E. We assign a EV/EBITDA multiple of 20.0x (modified) ascribing a target price of INR12,225, maintaining our rating to BUY.

For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131