UltraTech Cement (UTCEM) delivered a steady performance aided by resilient realization and healthy volumes, while the elevated cost inflation resulted in a performance miss. Consolidated EBITDA stood at Rs27.1bn (+1% YoY and -18% QoQ), below our estimate of Rs29.3bn, while EBITDA/tonne stood at Rs1,254 vs. Rs1,345 in 2QFY21 and Rs1,536 in 1QFY22. Sales volume improved by 8% YoY to 21.64mnT (+1% QoQ) vs. an estimate of 21.7mnT, while the average realization for cement came in at Rs106/tonne higher than the estimate at Rs5,126/tonne (+6.2% YoY and -1% QoQ). Opex/tonne increased substantially by 12.1% YoY and 8.6% QoQ at Rs4,299/tonne, which is Rs214/tonne higher then our estimate. Notably, finance costs declined considerably by 36% YoY and 30% QoQ to Rs2.3bn due to the repayment of debt and a reduction in the cost of debt. This is quite positive for the company, which offers comfort. APAT grew by 18% YoY to Rs13.1bn (-23% QoQ) vs. an estimate of Rs14.2bn, mainly due to an elevated cost pressure. We increase the EBITDA estimate by 10.2 %/10.1% /13.3% for FY22E/FY23E/FY24E respectively, mainly to factor the superior realizations in 1HFY22 and the recent rise in prices. Keeping our target multiple unchanged for FY24E at 15x, we maintain our BUY rating with a revised 12-month target price of Rs9,400.
Sales Volume Remains Steady
UTCEM continued to report an industry-leading volume growth by recording 8% YoY increase in sales volume at 21.64mnT (including 0.38mnT from white cement, 0.21mnT export volume and 1.21mnT from overseas subsidiaries). Notably, the sustained demand from infrastructure segment and improved traction from real estate demand supported sales volume. Trade demand accounted for 67% vs. 70% in 1QFY22.
Higher Costs Led To Earnings Miss
While the average cement realizations at Rs5,126/tonne (+6.2% YoY and -0.6% QoQ) remained resilient despite the seasonal weakness, a sharp increase in operating cost led UTCEM to report sub-par performance. Consolidated EBITDA stood at Rs27.1bn (+1% YoY and -18% QoQ), below our estimate of Rs29.3bn. Input cost/tonne (RM+P&F) surged to Rs1,964 (+11.9% YoY and +9% QoQ). However, freight cost/tonne and other exp/tonne increased by 0.4% QoQ and 20% QoQ, respectively. Hence, the sharp increase in input costs and other expenditures dented margins. Going forward, elevated fuel costs are expected to take a further toll on margins. However, the recent price hike (average price came to pre-monsoon level) and operating leverage led by higher utilization are likely to nullify the impact to a large extent.
Outlook and Valuation
UTCEM has been witnessing a better-than-industry growth over the years, which is expected to sustain going forward as well owing to the huge capacity addition plan by FY23 (19.5mnT). Further, OCF generation has been quite healthy in the recent years, mainly supported by steady realization and operating efficiencies, which have already enabled the company to deleverage its balance sheet meaningfully. We expect its net debt-to-EBITDA to reach 0.16x in FY22E and -0.97x in FY24E. Keeping our target multiple unchanged for FY24E at 15x, we maintain our BUY rating with a revised 12-month target price of Rs9,400. Notably, we have shifted to a 1-year target price, from the earlier 2-year. As we enter 2HFY22, instead of rolling forward the valuation, we maintain it based on FY24E earnings and shift to a 1-year target price of Rs9,400.
Link to the report
Shares of UltraTech Cement Limited was last trading in BSE at Rs. 7397.70 as compared to the previous close of Rs. 7403.50. The total number of shares traded during the day was 52529 in over 10218 trades.
The stock hit an intraday high of Rs. 7642.55 and intraday low of 7303.25. The net turnover during the day was Rs. 393220099.00.