Ultratech Cement - 3QFY22 Result Update - Soft Quarter - Margins Seem to Have Bottomed Out

UltraTech Cement (UTCEM) reported weak numbers in 3QFY22, largely in-line with our estimates. Margins declined on expected lines, led by cost pressure and weak demand. Demand in 3QFY22 was hit by unseasonal rains and certain external factors. Consolidated EBITDA stood at Rs24.2bn (-22% YoY and -11% QoQ), marginally ahead of our estimate of Rs23.9bn, while EBITDA/tonne stood at Rs1,046 vs. Rs1,299 in 3QFY21 and Rs1,254 in 2QFY22. Sales volume fell by 3% YoY to 23.1mnT +7% QoQ) vs. our estimate of 23.3mnT, while average realization came in at Rs5,430/tonne (+5.7% YoY and 5.9% QoQ), Rs95/tonne lower than our estimate. Opex/tonne increased substantially by 19.1% YoY and 6.3% QoQ at Rs4,568/tonne, which is Rs71/tonne higher than our estimate. Notably, finance cost declined considerably by 49% YoY and 21% QoQ to Rs1.8bn due to repayment of debt and a reduction in the cost of debt. This is quite positive for the company, which offers comfort. APAT fell by 26% YoY to Rs11.7bn (-10% QoQ) vs. our estimate of Rs10.9bn, due to lower-than-expected interest cost. Keeping our target multiple unchanged for FY24E at 15x, we maintain our BUY rating with a revised 12-month target price of Rs8,920.

Sales Volume

UTCEM continued to report steady volume growth by recording 7% QoQ (down 3.1% YoY) increase in sales volume at 23.1mnT. Average capacity utilization in 3QFY22 stood at 75%. Demand substantially declined in Nov'21 but improved in Dec'21 with capacity utilization of ~84%. Management remains hopeful of a strong demand recovery in a couple of years owing to general elections.

Higher Costs Led to Earnings Decline

While the average cement realizations at Rs5,430/tonne (+5.7% YoY and 5.9% QoQ) remained resilient despite some weakness, a sharp increase in operating costs led UTCEM to report sub-par performance. Consolidated EBITDA stood at Rs24.1bn (-22% YoY and -11% QoQ), marginally higher than our estimate of Rs23.9bn. Input cost/tonne (RM+P&F) surged to Rs2,284 (+30% YoY and +16% QoQ). While freight cost/tonne increased by 1.7% QoQ, other expenditure fell 4.4% QoQ due to higher volumes. We believe that the industry has seen peak of the fuel cost inflation and imported/domestic petcoke prices have declined 38%/33% from its peak in Nov-21. This should help cost moderate from 1QFY23.

Outlook and Valuation

UTCEM has been witnessing 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 0.22x in FY22E and -0.87x in FY24E. Keeping our target multiple unchanged for FY24E at 15x, we maintain our BUY rating with a revised 12-month target price of Rs8,920 (from earlier Rs9,400).

Link to the report

Shares of UltraTech Cement Limited was last trading in BSE at Rs. 7364.75 as compared to the previous close of Rs. 7454.90. The total number of shares traded during the day was 5658 in over 1509 trades.

The stock hit an intraday high of Rs. 7449.75 and intraday low of 7313.80. The net turnover during the day was Rs. 41794668.00.

Source : Equity Bulls

Keywords

UltraTechCement INE481G01011 ULTRACEMCO Q3FY22 ResultUpdate RelianceSecurities