ICICI Direct is bullish on UltraTech Cement has recommended buy rating on the stock with a target price of Rs 4200 in its research report dated May 21, 2020.
ICICI Direct's research report on UltraTech Cement
UltraTech Cement reported a better than estimated performance for Q4FY20. Sales dipped 13.5% YoY to Rs 10,360 crore (vs. I-direct estimate of Rs 9,364 crore). The drop in revenue was driven by 16.4% YoY decline in volumes to 20.5 MT (vs. I-direct estimate: 17.8 MT), partly offset by 3.5% increase in realisations YoY to Rs 5,049/t (vs. I-direct estimate: Rs 5,260/t). On the profitability front, EBITDA margins expanded 163 bps YoY to 21.8% (vs. I-direct estimate of 23.3%) while absolute EBITDA declined 6.6% YoY to Rs 2,262 crore (vs. I-direct estimate: Rs 2,178 crore). EBITDA/t saw an increase of 11% YoY to Rs 1,103/t (vs. I-direct estimate of Rs 1,223/t) driven by higher realisations. Net profit increased sharply YoY by 175% due to a reversal of deferred tax liability of Rs 1803 crore. Further, the company has restricted its total estimated capex outlay for FY21E at Rs 1000 crore citing increasing focus towards debt reduction and cash conservation.
UltraTech has sailed through tough times in the past and also managed to protect its B/S despite making large acquisitions. Its pan-India presence, combined with management pedigree and B/S strength, should augur well in future as well. Unlike in the past where UltraTech traded in the range of $150-200 on an EV/t basis, it is hovering around $120 on FY22E EV. Also, on the EV/EBITDA front, it is trading at ~30% discount to its eight year average multiple. Thus, we maintain our BUY rating with a target price of Rs 4,200.
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