1. UltraTech Cement rated ‘Overweight’ by Morgan Stanley, says EBITDA beat driven by costs

UltraTech Cement rated ‘Overweight’ by Morgan Stanley, says EBITDA beat driven by costs

We cite gradual improvement in industry cement demand, UTCEM’s positioning with timely capacity additions, and its pan-India presence.

By: | New Delhi | Published: April 29, 2017 3:59 AM
We cite gradual improvement in industry cement demand, UTCEM’s positioning with timely capacity additions, and its pan-India presence. (Reuters)

We cite gradual improvement in industry cement demand, UTCEM’s positioning with timely capacity additions, and its pan-India presence. Cost focus should further aid earnings growth. We believe current multiples are sustainable, as we project 25% Ebitda CAGR over FY17-19. Ultratech reported a 7% y-o-y decline in FY17Q4 standalone Ebitda, to Rs 12.8 bn, ahead of consensus and our estimate. The key positive surprise was lower-than expected cost and marginally better-than-expected blended realisation. However, this was partly offset by a marginal miss on volumes.

Reported PAT declined 12% y-o-y, to Rs 6.8 bn, helped by higher other income that was ahead of our estimate. The company recommended a final dividend of 10 per share for FY2017. The results support our view that with its pan-India presence, cost focus and a strong brand, the company is well positioned in the looming up-cycle. Moreover, we highlight that exit prices for the quarter were higher than the average for the quarter and the industry has taken further price hikes in Apr-17, and costs are likely to remain benign in the near term, which should support earnings momentum.

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Revenues grew 3% y-o-y
Ultratech’s revenues, at Rs 66 bn, grew 3% y-o-y, in line with consensus and our estimate. This was driven by marginally better-than expected realisation, partly offset by a marginal miss on volumes. Total cement volumes grew 1% y-o-y to 13.7 mnt, while domestic volumes were flat at 13.4 mnt. On a sequential basis, domestic volumes grew 20%, helped by seasonality and some demand pick-up following the impact of demonetisation in QE Dec-16. White cement volumes were also flat y-o-y at 0.39 mnt. We expect demand momentum to improve in ensuing quarters, which should further support earnings growth.

Blended realisations were up 2% y-o-y, marginally better than our estimate. We believe that with a gradual demand recovery in FY18Q1 on the back of government spending on housing, infrastructure, irrigation and railways, and a pick-up in housing demand, realisations too should firm up. Standalone Ebitda at `12.8 bn; down 7% y-o-y but 4% ahead of our estimate
Ebitda at `12.8 bn was supported by lower-than-expected costs. The 7% y-o-y decline was led by a 210 bps y-o-y margin decline. We estimate per ton Ebitda at Rs 934, vs. our estimate of Rs 893. PBTs at Rs 10.3 bn was down 2% given higher interest costs that were partly offset by higher-than-expected other income.

Costs declined sequentially, were marginally below our estimate Ultratech’s per ton costs declined 1% q-o-q, aided by lower-than-expected energy and employee costs, which were partly offset by higher material costs. We expect costs to remain benign in the near term. Energy cost declined 1% sequentially, and was 4% below our estimate. Freight costs increased marginal 1% y-o-y and 2% on sequential basis, in line with our estimate.

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