Buy Ultratech Cement; target of Rs 4949: Emkay Global Financial

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Emkay Global Financial's report on Ultratech Cement

UTCEM’s Q1 results beat estimates, boosted by higher grey cement realization (up 9.2% qoq vs. estimated 6.8%) and lower opex. Consolidated EBITDA came in at Rs20.7bn vs. estimated Rs16.9bn, while EBITDA/ton stood at Rs1,416 vs. estimated Rs1,159. Key positives: 1) 21% yoy fall in fixed costs; 2) Rs22.1bn reduction in net debt, and net debt/EBITDA of 1.44x vs. 1.55x in Q4FY20; 3) 4% yoy/2.4% qoq decline in Opex/ton; and 4) record high EBITDA/ton of Rs1,416 (up 2.8% yoy). Key negative was a 40% yoy decline in white cement segment’s volume and 73% yoy decline in RMC revenues. Management believes that the 10% reduction in overheads is sustainable. The utilization of its plants is at 60-65% vs. 64% in July’19. Capex guidance has been increased to Rs15bn vs. Rs10bn earlier (to be spent on WHRS, etc.) as the outlook has improved.

Outlook

We raise EBITDA estimates by 30.7%/16.2%/15.9% for FY21/22/23 on higher realization and cost savings. UTCEM will benefit from cost reduction initiatives. Debt reduction will help in improving the balance sheet further. UltraTech remains our preferred large-cap pick with a Buy rating and OW in sector EAP.

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