Maintain ‘buy’ on Ultratech Cement with TP of Rs 4,960

UltraTech Cement’s (UTCEM) Q4FY18 EBITDA of Rs 1,700 crore (up 33% YoY) was above our/consensus estimates mainly led by better than expected cement realisation. Blended realisation increased 2% QoQ vs our estimate of flat realisation owing to change in sales and market mix. Total cost/te increased 5% YoY, broadly in-line with our estimates.

Accordingly, EBITDA/te stood flat YoY at Rs 922/te (I-Sec: Rs 797/te). Total volume grew 31% YoY to 18.5mnte.

Average capacity utilisation of JPA assets increased to 75% in Q4FY18 with exit run rate of 85% in March’18. Management highlighted demand recovery to continue (8% YoY in FY18) on the back of increased infrastructure spends, pick-up in affordable housing demand, and reviving rural housing demand, and expects pricing to improve with improving utilisation.

Factoring increasing cost escalations, we cut our FY19-20E EBITDA by 4% and reduce our target price to Rs 4,960/share, based on 15x Mar’20E EV/E. Maintain BUY. Standalone revenues increased 37% YoY to Rs 8,880 crore led by 32% YoY grey cement volume growth to 18.1mnte. Utilisation at JPA assets stood at 75% for the quarter. Accordingly, volumes in UTCEM’s existing plants grew by 9% YoY. Grey cement realisation increased 2.6% QoQ / 7.1% YoY – better than our estimates owing to higher trade sales QoQ and market mix change.

White cement & wall putty and RMC revenues increased 7% YoY / 11% YoY respectively to Rs 540 crore each.

Management targeting JPA’s acquired assets to be PBT break-even by Q1FY19: As per management, JPA assets became cash breakeven in Q4FY18 assuming 80% debt funding. Management expects similar break-even at PBT levels by Q1FY20. Cost/te gap of Rs 125/te with UTCEM is likely to be bridged over the next few quarters.

Other expenses/te declined 7% YoY / 13% QoQ led by improvement in operational efficiencies and operating leverage and reduction in employees cost on account of lower provisioning of retirement benefit on hardening of interest rate. In Q4FY18, consolidated revenues increased by 34% YoY to Rs 9,300 crore; EBITDA increased by 33% YoY to Rs 1,800 while adjusted PAT stood flat YoY at Rs 760 crore.