Rating: buy; UltraTech Cement: Input cost to remain elevated | The Financial Express

Rating: buy; UltraTech Cement: Input cost to remain elevated

Cement capacity may rise to 154mt by FY25E under Phase-II

UltraTech Cement, UltraTech Cement news, UltraTech Cement latest news, UltraTech Cement shares, UltraTech Cement stocks

UltraTech’s consolidated EBITDA declined 4% y-o-y/increased 25% q-o-q to Rs 23.4 bn in Q3FY23, coming in 6% below our estimates owing to higher than expected cost/ton. Blended Ebitda/ ton fell 14% y-o-y/ increased 12% q-o-q to Rs 904. In Phase-1, the company’s domestic grey-cement capacity is expected to increase to 131mt by FY23-end from 121mt currently. It may further rise to 154mt by FY25E under Phase-II which should propel volume growth and market-share gains.

Management’s commentary is cautious, as it does not expect any significant movement in cement prices in the near term, and input cost is expected to remain elevated over the longer term. Factoring-in the Q3 miss, the slow pace of price hike and higher fuel cost/ton, we reduce our FY24E-25E Ebitda by 4-6% with revised TP of Rs 7,350/sh (earlier Rs7,100), based on 13x Mar-25 EV/E (on half-yearly roll-over). We maintain Buy, given that the company’s extensive pan-India presence, premium brand positioning, and focus on cost efficiency make it better placed to improve its margin in the medium term.

Results summary: UltraTech’s consolidated volume grew by 12% y-o-y to 25.9mt, while blended realisation increased 8% y-o-y/~1% q-o-q to Rs 5,918. India operations Ebitda declined 4% y-o-y/increased 24% q-o-q to Rs 22.4 bn, with Ebitda/ton at Rs 910. Capacity utilisation increased by 800bps y-o-y to 83% in Q3FY23. Total cost/ton increased by 12% y-o-y/declined 2% q-o-q to Rs 5,101). Consolidated PAT declined 10% y-o-y/increased 40% q-o-q to Rs 10.6 bn.

In Q3, UltraTech generated FCF of Rs 6.6 bn post working-capital release of Rs 4 bn and capex spend of Rs 15 bn. Accordingly, net debt declined by Rs 6.4 bn q-o-q to Rs 77 bn, as of Dec-22.

What we liked: Double-digit volume growth, robust demand outlook and decline in net debt. What we did not like: Higher-than-expected cost and management’s cautious commentary on cement price and input cost.

Earnings call KTAs: The management does not expect any significant movement in cement prices; however, it remains hopeful that price may firm up with increasing utilisation levels. The company mentioned that it is disinclined to losing market share in a growing demand environment. It expects fuel cost reduction sequentially in Q4FY23; however, it does not expect any major softening in the long run. Capacity utilization stood at 83% in Q3 (92% in Dec-22) and is expected to improve >90% in Q4; Infra (owing to pre-election spending) and Rural (due to better MSP) demand is expected to be the key growth driver.

UltraTech has commissioned 16MW of WHRS (waste heat recovery systems) in Q3 and expects to add another 30MW in Q4, increasing its total WHRS capacity to 238MW by Mar-23. Besides, all clinkerisation units are expected to have WHRS by FY24. Green power is targeted to increase to 50% by 2030. The company commissioned 6.8mt capacity in 9MFY23 and is expected to commission another 10mt in the next few months. It is on track to complete Phase-2 of expansion by FY25/FY26, and targets 200mt capacity by FY30, through the organic route.

The management maintained its capex guidance of Rs 60-70bn in FY23. Revenue from construction chemicals is likely to be Rs 8-10bn in FY23; Trade mix declined 200bps q-o-q to 66%, while blended sales stood at 68%.

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First published on: 27-01-2023 at 02:35 IST