Maintain BUY on UltraTech Cement - UltraHigh! Margin at its best ever; outlook strong - HDFC Securities

We maintain BUY on UltraTech (UTCEM) with a higher target price of INR 8,155/share (16x Jun'23E consolidated EBITDA). UTCEM delivered its best-ever consolidated EBITDA margin - INR 1,536/MT (+16/8% QoQ/YoY) -in Q1FY22. Amidst lower sales QoQ (lockdown impact), robust pricing and healthy cost controls moderated the consolidated net sales/EBITDA/APAT decline to 18/10/6% QoQ, resulting in INR 118.3/33.1/17.0bn (+54/59/79% YoY on a low base) respectively. We continue to like UTCEM for its strong volume focus along with superior margin delivery and working capital (WC) controls.

FY22Q1 performance: UTCEM continued to surprise positively, as it posted its best-ever EBITDA margin in Q1FY22. While the pandemic impact pulled down total sales volume by 23% QoQ, robust pricing across all markets buoyed NSR by 6% QoQ. Further, continued efficiency improvement, fuel mix optimisation, asset sweating and, rising share of green power moderated the impact of lower utilisation and soaring fuel prices. Thus, unitary opex rose a modest 3% QoQ, driving up unitary EBITDA to an all-time high of INR 1,536/MT. Interest cost continued to decline on UTCEM's steady debt reduction, thereby boosting APAT.

Outlook: UTCEM expects to commission its ongoing expansion (19.5mnMT- spread across north, central, east and west regions), by end FY23. It will also continue to reduce debt to become a net cash company. It is also investing towards increasing the share of green power to 34% by FY24, from 13% in FY21. We upgrade our consolidated EBITDA estimates for FY22/23/24E by 8/5/5% respectively, factoring in the robust pricing and continued production- efficiency gains. We reiterate our BUY rating with a revised target price of INR 8,155/share, (16x Jun'23E consolidated EBITDA).

Shares of ULTRATECH CEMENT LTD. was last trading in BSE at Rs. 7494 as compared to the previous close of Rs. 7459.85. The total number of shares traded during the day was 31260 in over 6923 trades.

The stock hit an intraday high of Rs. 7630 and intraday low of 7474. The net turnover during the day was Rs. 235456432.

Source : Equity Bulls

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