YES Securities is bullish on UltraTech Cement has recommended buy rating on the stock with a target price of Rs 4413 in its research report dated May 21, 2020.
YES Securities' research report on UltraTech Cement
Total volumes for Q4FY20 stood at 21.4 MT (est. of 21.7 MT), down by 15.7% y/y due to lockdown measures. Sharp jump in utilization level of Century assets to ~83% during the quarter came in as a positive surprise. EBITDA was Rs 24.43 bn (-3.9% y/y) – in line with our estimates of Rs 24.4 bn. EBITDA/te stood at Rs 1,139, improving by 14% y/y led by stable pricing scenario and reduction in clinker production cost (which declined by 13.7% y/y). EBITDA/te for Century assets (ex-one time cost) was Rs 575 (flat y/y) vis-à-vis our estimates of Rs 595. Notwithstanding the fact that current utilization level of 60-70% for UTCEM is encouraging, we believe that there is limited room for further improvement of utilization level in the medium term as labour migration and arrival of monsoon would drag demand growth.
Going ahead, we estimate volume/EBITDA CAGR of 5%/2.7% over FY20-FY22 respectively. Currently UTCEM is trading at EV/EBITDA at ~11.4x and EV/te of $134 on FY22E. Taking an average of EV/EBITDA and DCF derived values, we have a target of Rs 4,413/share (implied EV/EBITDA multiple of 14x on FY22E). We maintain our BUY rating on the stock.
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