Prabhudas Lilladher's research report on Ultratech Cement
UTCEM posted strong set of Q1FY21 earnings on the back of lower fixed costs. EBITDA fell 30% YoY at Rs19.6bn, above our/consensus estimates by 22%/18%. EBITDA/t rose 6% YoY at Rs1,400 (PLe:Rs1,170) on the back of 3% YoY reduction in cost and 2.5% increase in realisations. Cement demand positively surprised us as well as the street with decline of 12% YoY in May (against street expectation/PLe of 40%/15% drop) and growth of 1% YoY in June (against street estimate/PLe of 15%/5% drop). Based on our channel checks, demand remained stable in July despite early monsoons and local lockdowns. On prices front, we remain confident on sustainability of tight discipline given the demand uncertainty and delay in ongoing capacity expansions. The major positive surprise came on the cost reduction and its sustainability going forward. Sustainable reduction of 10% in fixed overheads, higher operating leverage and lower coal costs would help keep costs under control. Hence, we upgrade EBITDA estimates by 10%/8% for FY21e/FY22e to factor in higher realisations and lower costs.
We remain bullish on UTCEM due to its dominant size (with capacity of 112mnt and market share of 22%) and highly efficient operations. We reiterate BUY with revised TP of Rs4,675, EV/EBITDA of 14x FY22E.
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