Ultratech Cement - Q4FY22 Result Update - Cost pressures to keep margins under check

Mr. Kamlesh Bagmar-Deputy Head of Research at Prabhudas Lilladher.

Quick Pointers:

- Price hikes to take care of increase in power & fuel cost

- Net Debt fell 35% QoQ to Rs37.5bn due to steady earnings and divestment of non-core Fibre glass operations in Europe (part of Binani acquisition)

- Will announce next round of expansion to take advantage of growing cement demand and strong B/S

UTCEM reported Q4FY22 earnings marginally above our estimates on back of better than expected realisations. EBITDA/t fell 16% YoY to Rs1,138 (PLe: Rs1,080).

Street attributes the slide in margins over last couple of quarters to abnormal increase in costs and erratic recovery in prices coupled with demand impacted by unseasonal rains, sand shortage, etc. However, we believe that scope for improvement in margins is very limited as sector is generating strong cash flows with continuous capacity addition. We continue to like UTCEM given its market leading position (20%+ market share), strong B/S (Net debt/EBITDA at 0.5x) and efficient operations. Maintain ACCUMULATE rating with TP of Rs7,180, EV/EBITDA of 15.0x FY24e.

Contraction in margins led the fall in earnings: Volumes remained flat YoY (+21% QoQ) at 26.6mnt (PLe:22.6mnt). Blended realisations increased 1.7% QoQ/Rs94 (+8.6% YoY/Rs445/t) at Rs5,619/t (PLe:Rs5,509/t). Domestic grey cement realisations grew 1.8% QoQ/Rs90 (+7% YoY/Rs328t) at Rs5,050/t (PLe: Rs5,020/t). RMC Revenues grew 27% YoY/27% QoQ at Rs8.5bn (PLe:Rs7.5bn). Cost increased 17.5% YoY to Rs4,570, below our estimate of Rs4,530. The miss was largely due to higher than expected RMC volumes and steeper increase in RM cost. Impacted by margin compression, EBITDA declined 16% YoY to Rs30.2bn (PLe:Rs28.8bn). Reported PAT grew 49% YoY to Rs26.1bn, aided by 1) tax write back of Rs9.8bn and 2) gain of Rs1.6bn on sale of asset held for sale. Adj for these exceptional items, PAT declined 17% YoY to Rs14.7bn, in line with our estimate.

Key takeaways of earnings call: 1) Current cement prices are higher by Rs30/bag (un-adjusted for taxes) at Rs390/bag over Q4 average 2) Share of petcoke increased to 40% from 25% in Q3 due to steeper increase in thermal coal 3) Fuel cost would be higher by 10% QoQ in Q1FY23e 4) Will spend Rs40-50bn in FY23e v/s Rs60bn in FY22 5) Commissioning of 2.3mnt clinker plant at Dalla, UP remained behind the schedule (with revised timeline of FY23 end) due to delay in securing forest clearance 6) Fiscal incentives for the quarter stood at Rs1.2bn 7) Expansion of white cement capacity in India (620kt at a capex of Rs9.65bn) put on hold as it acquired 29% stake in UAE based white cement producer, RAK cement 8) RAK cement has 900kt/600kt of clinker/white cement capacity with utilisaion at 65%. It exports 20% of the capacity to India and rest to attractive markets of GCC and Africa 9) Closed the divestment of European glass fiber business (part of Binani acquisition) in Q4 for ~€90mn

Shares of UltraTech Cement Limited was last trading in BSE at Rs. 6677.75 as compared to the previous close of Rs. 6629.00. The total number of shares traded during the day was 6239 in over 2103 trades.

The stock hit an intraday high of Rs. 6728.55 and intraday low of 6543.85. The net turnover during the day was Rs. 41525681.00.

Source : Equity Bulls

Keywords

UltraTechCement INE481G01011 Q4FY22 FY2022 ResultUpdate PrabhudasLilladher