UltraTech Cement - Strong show; consensus upgrade to continue - ICICI Securities

UltraTech Cement's (UTCEM) Q4FY21 consolidated EBITDA at Rs37bn (up 51% YoY) was significantly higher than consensus estimates. India operations volume grew 30% YoY (2yr CAGR of 4.5%), grey cement realisation was up 2% QoQ and EBITDA/te rose 17% YoY to Rs1,356/te - all ahead of consensus estimates. Management expects strong upcycle over the next 3-5yrs with all demand drivers looking upbeat and the recent slowdown arising from the 2nd covid wave may be temporary. We believe UTCEM is likely to rerate as it continues to gain market share with improved profitability / RoCEs and turn net debt free by FY22E. We maintain our 'ahead of consensus' FY22-23 estimates with an unchanged target price of Rs8,000/share based on 15xFY23E EV/E. Maintain BUY. Key risks: Lower-than-expected demand / pricing growth and any regulatory intervention.

- India operations revenue increased 35% YoY to Rs137bn. Capacity utilisation was up 13% YoY to a decade high of 93% with volumes increasing 30% YoY / 17% QoQ to 26.17mnte (2yr CAGR of 4.5%). Cement demand remained resilient led by strong rural demand and pick-up in infrastructure activities, as per management. Grey cement realisation rose 2% QoQ to Rs4,787/te owing to higher price increases in non-trade segment and was up 5% YoY aided by higher prices in South and West regions. RMC revenue too grew 32% YoY to Rs6.7bn. White-cement/putty revenues were up 33% YoY at Rs5.6bn led by 31% YoY volume growth to 0.42mnte.

- India operations EBITDA increased 51% YoY to Rs36bn with EBITDA/te up 17% YoY at Rs1,356/te. Total costs/te increased only 1% QoQ to Rs3,889/te - in-line with our estimates, as sharp increase in fuel and diesel prices was offset by improved operating efficiencies, fuel mix optimisation and better operating leverage. Other income was lower at Rs0.6bn vs Rs2.6bn QoQ and Rs2bn YoY on lower MTM on investments. Recurring PAT was up 60% YoY to Rs18.1bn.

- Consolidated net debt declined by Rs102bn in FY21 (Rs27bn in Q4FY21) to Rs67bn on strong FCF generation post capex of Rs18bn and working capital release of Rs23bn in FY21. Net debt/EBITDA reduced from 1.72x as on Mar'20 to 0.55x as on Mar'21. Return ratios (post-tax) improved sharply by 330bps YoY to 12-13%. The company declared dividend of Rs37/sh vs Rs13/sh in FY20 implying higher dividend pay-out ratio of 20% for FY21.

-Expansion plans on track. With respect to the capacity expansion plan announced earlier (19.5mnte spread across 5 integrated cement plants and 12 grinding units), most orders for equipment have been placed and civil work has commenced. Commercial production from the incremental capacity is expected to start in a phased manner during FY22 and FY23. Given >70% of these expansions are brownfield with average capex of US$60/te, these assets are expected to enjoy healthy >15% RoCE.

Shares of ULTRATECH CEMENT LTD. was last trading in BSE at Rs.6484.8 as compared to the previous close of Rs. 6406.2. The total number of shares traded during the day was 26919 in over 4261 trades.

The stock hit an intraday high of Rs. 6521.95 and intraday low of 6421.45. The net turnover during the day was Rs. 174506577.

Source : Equity Bulls

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