Maintain BUY on UltraTech Cement - Speeding on organic expansions! - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

UltraTech (UTCEM) has charted out its expansion plans for the next three years, whereby it will increase its grey cement/ clinker capacity in India by 19.5/11.4mn MT respectively, entailing a total Capex of Rs 65.3bn. Post this, its cement capacity in India will increase to 130mn MT by end FY23E/early FY24E. These should support its volume growth visibility FY24E onwards. The Capex rate is low, owing to ~50% brownfield expansions and lower clinker expansion needs. Multiple split GUs and WHRS additions will also help control operating cost, supporting its strong margins. We continue to like UTCEM for its robust margin outlook and debt reduction. We maintain BUY with an unchanged TP of Rs 5,670/share (15x Sep'22E consolidated EBITDA).

Capacity to increase by 18% in next three years: Over the next three years, UTCEM plans to add 19.5 mn MT of capacity organically, across east (10.2mn MT), central (5.1mn MT), north (2.5mn MT), and west (1.8mn MT) respectively. Of these, 6.7mn MT pertains to earlier announced expansions (3.3/3.4mn MT in central/eastern regions respectively) to be commissioned during FY21/22E. The additional 12.8mn MT announced today is expected to be completed by H2FY23E, as per the company. Post these expansions, UTCEM's grey cement capacity in India will increase by 18% to 130mn MT. To support these, UTCEM will increase its clinker capacity by 11.4mn MT across Rajasthan (2.7mn MT, greenfield), UP (2.3mn MT, greenfield), MP (3.7mn MT, greenfield), and Chhattisgarh (2.7mn MT, brownfield).

Improvement in capacity spread in eastern region and reduction in distribution cost: Post these expansions, UTCEM's capacity spread across north/central/east/west/south will improve to 20/22/19/22/16% respectively vs 22/22/13/24/19% in FY20. This will improve its capacity exposure in the high growth east markets. UTCEM is adding many split GUs across eastern and central regions, which will reduce its sales lead distance and lower opex. Additionally, UTCEM is also adding 57MW of WHRS across these clinker expansions, in addition to various other ongoing WHRS/solar power expansions. Thus, UTCEM would increase the share of low-cost green power to 34% (over the next three yrs) vs 13% currently, thus reducing costs.

Robust margin and balance sheet outlook: UTCEM expects to spend a total of Rs 65.3bn towards these 19.5 mn MT expansions. The Capex rate is low (Rs 3.4bn per mn MT), owing to brownfield expansion accounting for ~50% of it, and lower clinker expansion. We expect these expansions to get fully commissioned by 1QFY24E and bolster UTCEM's volume growth visibility FY24 onwards. Hence, we maintain our estimates for FY21/22/23E. We continue to like UTCEM for its robust margin outlook and debt reduction. We maintain BUY with a TP of Rs 5,670/share (15x Sep'22E consol EBITDA).

Shares of ULTRATECH CEMENT LTD. was last trading in BSE at Rs.5092.9 as compared to the previous close of Rs. 4892.25. The total number of shares traded during the day was 89242 in over 13317 trades.

The stock hit an intraday high of Rs. 5198.3 and intraday low of 4962.45. The net turnover during the day was Rs. 454412522.

Source : Equity Bulls

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