UltraTech Cement’s Q3FY20 adjusted consolidated Ebitda rose 32% y-o-y to Rs 2,110 crore with Ebitda/tonne at Rs 1,008 — higher than our/consensus estimates owing to lower costs. This was despite a 4% y-o-y decline in overall volumes with Century assets operating at 55% utilisation and sub-optimal Ebitda/t of ~Rs 113. Management indicated demand has started to pick up from December 2019 and Century assets’ utilisation has since been ramped up to 79%. Net debt reduced by Rs 2,000 crore q-o-q to Rs 18,600 crore and recurring PAT doubled y-o-y to `810 crore.
Factoring-in lower interest costs, we raise our FY20E-FY22E EPS by ~5% and our target price to Rs 5,480 (earlier: Rs 4,950) based on 14x Sept 2021E EV/E on half-yearly rollover. Maintain ‘buy’. India operations revenues stood flat y-o-y at Rs 9,800 crore, broadly in line with our estimates. Total volumes declined 4% y-o-y to 20 MT owing to lower utilisation in Century and muted volumes. Management mentioned initial signs of demand revival were visible in December 2019 and expects the momentum to sustain with likely pick-up in government spending.
Grey cement realisation declined 3.7% q-o-q (still up 5.4% y-o-y) to Rs 4,506/t — in line with our estimates — led by price fall in East, West and South regions. Management mentioned prices have seen some increase in January across a few regions. India operations adjusted Ebitda rose 32% y-o-y to Rs 2,040 crore with Ebitda/t rising 38% y-o-y to Rs 1,020/t (I-Sec: Rs 942/t). Total cost/t declined 2.6% y-o-y vs our estimate of 1.4% decline owing to lower other expenses.
We have considered Rs 130 crore as a one-time settlement against contingent/other disputed liabilities under the government Sabka Vishwas scheme as non-recurring. Century’s cement assets operated at 55% utilisation, implying a 23% y-o-y decline in volumes to 2 MT in Q3FY20. Ebitda/tonne likely stood at Rs 113 (including Rs 31-crore integration costs). Management expects to ramp up utilisation to ~85% during H1CY20 and guided that ~84% of the output would be transitioned to UTCEM brand (vs 55% in December 2019).
Also, costs would be in line with existing UTCEM assets (excluding Rs 70/t royalty cost) by Q2FY21. UNCL (earlier Binani) operated at 60% utilisation with Ebitda/t at >Rs 1,500. Divestment of UNCL’s non-core assets in China and Europe is expected by June 2020; while it recently divested 0.6 MT grinding unit in Bangladesh at an EV of $30 million. UTCEM not keen on acquiring Emami Cement; likely to generate FCF of Rs 11,000 crore over FY21E-FY22E.