Analyst Corner: UltraTech Cement – Maintain ‘reduce’, revise FV to Rs 6,300

By: |
May 12, 2021 7:00 AM

With a strong balance sheet and management’s focus on RoE expansion, dividend payout has upside risk.

Management is confident of strong demand recovery and sees the near-term Covid-19 impact as transient.

UltraTech Cement’s 4QFY21 earnings were higher than our estimates led by stronger volumes (+30% yoy). The company has been deleveraging at an impressive pace and should become net cash in FY2022E despite growth capex. Capacity expansion and WHRS projects are on track to complete over FY2022-23E and provide strong growth visibility.

With a strong balance sheet and management’s focus on RoE expansion, dividend payout has upside risk.
UTCEM’s earnings were higher than our and consensus estimates—the company reported India operations ebitda of Rs 36 billion (+51% yoy , +19% qoq) against our estimate of Rs 34.5 billion. Volumes increased by 30% yoy, ahead of the industry growth during the quarter. Realisations increased to Rs 5,245/tonne (+4% yoy, +1% qoq) on higher premium product sales. Ebitda/tonne increased to Rs 1,356/tonne (+17% yoy, +2% qoq; KIE: Rs 1,346/tonne). For FY2021, ebitda increased to Rs 113 billion (+25% yoy) or Rs 1,370/tonne (+19% yoy) on higher volumes at 82.6 mn tonne (+5% yoy), higher prices (+1% yoy) and lower costs (-4% yoy).

Management maintained its guidance for completion of its 19.5 mtpa grinding and 11.1 mtpa clinker capacity expansions by FY2023-end. UTCEM’s capacity would increase to 131 mtpa by FY2023E (capex of $46/tonne) or at a CAGR of 5.5%, ahead of industry capacity growing at 4.4% CAGR. With strong operational cash flows, we estimate 5-6% FCF yield in FY2021-24E despite growth capex and to help UTCEM become net cash positive in FY2022E.

Management is confident of strong demand recovery and sees the near-term Covid-19 impact as transient. We have revised our ebitda estimates by 2%/0%/1% for FY2022/23/24E and fair value to Rs 6,300 (from Rs 6,250) mainly led by higher volumes. We see balance risk-reward after the strong rally in the past three months and see limited upside at current 12X EV/ebitda (or $180 EV/tonne) on FY2023E. Maintain ‘reduce’.

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