Maintain BUY on UltraTech Cement - Robust margin and leverage performance - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities.

UltraTech Cement (Q4FY20 Results Review): Robust margin and leverage performance. Maintain BUY.
(TP Rs 325, CMP Rs 242, MCap Rs 25 bn)

We maintain BUY rating on UltraTech Cement with a TP of Rs 4,720 (15x FY22 consol EBITDA). In FY20, UltraTech's profits surged, and it also reduced its working capital and debt on books. In FY21E, we expect falling energy costs to moderate the impact of an expected sharp 16% vol decline. However, we build in 21% vol recovery in FY22E (owing to its robust distribution) as demand normalises to drive earnings rebound in FY22E. In Q4FY20, amid sharp 16% vol fall (covid impact), falling energy costs and increased fixed cost controls boosted op margin to Rs 1,139/MT (+14% YoY).

Healthy profits despite weak volumes: Subdued growth in Jan/Feb-20 and 10-days sales loss in Mar-20 pulled down consol grey cem vol by 16% YoY to 24.3mn MT. White/putty vols fell 22% YoY to 0.32mn MT. Blended NSR rose 1% QoQ on price hike taken in 4Q, thus bolstering YoY gain at +3%. Unitary opex stood flat YoY, aided by fall in input costs (lower petcoke prices, reduction in fuel consumption rate, increased blended cem). However, the benefit was moderated on neg op-lev. Healthy pricing thus boosted unitary EBITDA to solid Rs 1,139/MT (+14% YoY), restricting consol EBITDA decline by 4% YoY. APAT grew 6% YoY on higher treasury gains and lower tax rate.

FY20 - Strong cash generation, debt reduction: While annual vol declined 4% YoY, NSR gained 5% YoY on healthy pricing during the year. This coupled with 1% opex decline buoyed unitary EBITDA 34% YoY to Rs 1,142/MT (its all-time high). Thus, consol EBITDA/APAT jumped 28/51% YoY. Additionally, the co reduced its working capital. These boosted OCF to Rs 89bn (+50% YoY). As capex remained flat YoY at Rs 17bn, UTCEM's net debt fell 25% to Rs 164bn. Net Debt/EBITDA cooled off to 1.8x vs 3x YoY.

Concall/ capex updates: Nathdwara plant integration achieved in Q4. Century plant's brand integration achieved ~65% production. Falling petcoke prices' benefits to continue in FY21. Overall plant utilisation improving MoM in May, mainly driven by retail demand. The Dalla Super clinker plant is expected by Mar-21E, the upcoming SGUs (in UP and in Eastern regions) to be delayed by at least six months owing to Covid impact.

Maintain BUY: We expect FY21E consol vol to fall 16% on sharp loss in 1H, however, we build in 21% recovery in FY22E. The profit impact in FY21 should be moderated by falling energy cost and lower discretionary spends. We maintain BUY with a TP of Rs 4,720 (15x FY22 consol EBITDA). We continue to ascribe it premium valuations (10% higher vs its 10yr avg) for its capacity & cost leadership and balance sheet discipline.

Shares of ULTRATECH CEMENT LTD. was last trading in BSE at Rs.3545 as compared to the previous close of Rs. 3439.25. The total number of shares traded during the day was 31166 in over 5289 trades.

The stock hit an intraday high of Rs. 3590 and intraday low of 3434.25. The net turnover during the day was Rs. 109787084.

Source : Equity Bulls

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