In 1QFY20, despite weak demand, UltraTech (UTCEM) reported historic high margins, on windfall pricing and benign op cost benefits. We reiterate BUY on UTCEM with a TP of Rs 5,280 (15x FY21E EBITDA).
HIGHLIGHTS OF THE QUARTER
* During 1QFY20, UTCEM reported very strong earnings as standalone revenue/EBITDA/PAT rose 15/57/100% YoY to Rs 97.95/25.50/11.99bn respectively (1/15/17% ahead of our rev/EBITDA/PAT est).
* Weak demand across India decelerated UTCEM’s grey volume growth to +2% YoY to 17.5 mn MT, leading to utilization dip to 75% vs 79/90% YoY/QoQ. Adjusted for sales from Nathdwara subsidiary, grey cement volumes declined 3% YoY. UTCEM’s white/putty volumes rose 5% YoY (down 23% QoQ) to 0.32 mn MT.
* Amid demand moderation, windfall pricing bolstered blended NSR by 12/10% YoY/QoQ. UTCEM’s strong cost focus, moderation in fuel/diesel prices further muted opex inflation to 3/4% YoY/QoQ (despite lower utilization). Thus, its unitary EBITDA surged 54% YoY to Rs 1,428/MT to its best ever. In our view, adjusted for white/putty and RMC, its grey EBITDA rose 65/20% YoY/QoQ at Rs 1,350/MT (3rd best in the industry).
* Capex updates: UTCEM guided for Rs 20bn capex in FY20E, mainly towards ongoing WHRS additions, Putty capacity increase (0.4 mn MT in 2HFY20E), and Dalla Super (UP) clinker plant (2.3 mn MT in1HFY21). In 3QFY20, UTCEM expects to commission the Bara GU (4mn MT, UP) and merge cement assets from Century (14 mn MT). Thus, by end FY21E, consol capacity will increase to 117 mn MT. In FY20, co expects to sell off the non-core assets acquired from Binani (~Rs5.5bn).
* Near term outlook: Ramp-up of the acquired cement plants of Nathdwara and Century, and upcoming plants in UP 2HFY20 onwards should boost UTCEM’s consol volume by 13% CAGR over FY19-21E. Further, recovery in cement prices, falling fuel/diesel prices and UTCEM’s rising cost efficiencies should boost UTCEM’s consol EBITDA/PAT by 28/40% CAGRs in the same period.
We reiterate BUY on UTCEM with a TP of Rs 5,280 (15x its Mar-21E EBITDA, implies EV of USD 218/MT). In our view, UTCEM deserves premium valuations for its capacity & cost leadership and balance sheet discipline. The stock currently trades at 12.3x FY21E consolidated EBITDA and at an EV of USD 179/MT
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