The share price of UltraTech Cement gained 2.4 percent intraday on January 27, as most brokerage houses remained bullish on the stock and raised their price target after the December quarter earnings.
While having an overweight call on the stock, Morgan Stanley raised its price target to Rs 5,350 from Rs 5,000 as the earnings were in line with expectations. Trends and commentary showed signs of a demand revival.
"The company remained our preferred pick within our cement coverage as the demand seen in December will be sustained over the coming months," it added. The brokerage increased its FY21, FY22 EBITDA estimates by 2.2 percent and 2.5 percent respectively.
Sharekhan, too, kept its buy rating but with a revised price target of Rs 5,200, rolling forward valuation to FY2022 earnings.
The brokerage expects UltraTech to be one of the key beneficiaries from the government infrastructure spend and affordable housing.
UltraTech reported a 90.2 percent year-on-year growth in consolidated profit in the third quarter at Rs 711.3 crore on revenue of Rs 10,354 crore that fell 0.9 percent YoY.
Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 23.7 percent YoY to Rs 1,973 crore and margin expanded by 380bps to 19.1 percent during the quarter.
Its restated standalone adjusted net profit grew 79 percent YoY led by a 4.4 percent rise in realisation and flat opex.
The company showed strong operating performance while Century's exit capacity utilisation improved to 79 percent.For All Earnings Related News - Click Here
Consolidated net debt reduced by Rs 3,486 crore leading to drop in net debt/EBITDA to 1.87x from 2.83x in FY2019.
UltraTech said it would expand capacity by 3.4 MTPA in the east which is expected to commission by FY2021-end and the integration of Century's cement business is likely to be completed by the end of Q2FY21.
"Ultratech Cement reported Q3FY20 earnings in line with our estimates. However, earnings missed consensus estimates by 6 percent due to lower than expected volumes. Century cement posted EBITDA per tonne of Rs 267 per tonne against break-even in Q2FY20, driven by improvement in utilization, lower maintenance cost and gradual migration to Ultratech brand," said Prabhudas Lilladher. The brokerage reiterated its buy call with a target of Rs 5,110 from Rs 4,675 earlier.
Around 84 percent of Century cement's volumes would be migrated to UltraTech brand by Q2FY21 against 55 percent in the month of December.
Led by well-diversified regional presence and with capacity of 117 million tonne and market share of 22 percent) and highly efficient operations, UltraTech remains the best candidate in cement sector to play Indian infrastructure and housing theme, said the brokerage. It which expects the company to beat street expectation on fast turnaround of Century cement, backed by improvement in realisations and lower energy and logistic costs.
Hence, it increased EBITDA estimates by 8.1/10.7 percent for FY21/FY22.
The management remained optimistic on demand recovery, driven by government infrastructure spending and a recovery in the real-estate sector. It expects EBITDA per tonne of Century's plants to improve to Rs 1,000 per tonne in Q1FY21.
Emkay also said UltraTech's Q3 consolidated results were in line with estimates.
"We raise FY20/21 EPS estimates by 6.2/8 percent factoring in lower interest costs. We believe UTCEM will be the key beneficiary of improvement in cement demand. We roll forward valuations to FY22E and maintain buy rating," it added.
While raising price target to Rs 4,600 from Rs 4,425 and Rs 4,340 from Rs 4,246, Goldman Sachs and Jefferies maintained neutral and hold ratings on the stock respectively, even after Q3 results were with their estimates.
"Excluding Century / Binani acquisition, the company's volume rose 1-2 percent YoY. Demand has picked up in many of the other regions since December," said Goldman Sachs. It expects an uptick in profitability & demand in Q4 and also in FY21. It raised FY20-23 EBITDA estimates by 1-3 percent).
Jefferies said the demand commentary was positive but Century turnaround looked tricky. "UltraTech remains on deleveraging glide path. The company did not bid for Emami due to a mismatch in valuation expectations."
The stock has rallied 15 percent in the last one month. It was quoting at Rs 4,700, up Rs 58.95, or 1.27 percent, on the BSE at 1055 hours.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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