ICICI Direct is bullish on Ultratech Cement has recommended buy rating on the stock with a target price of Rs 5350 in its research report dated October 23, 2019.
ICICI Direct's research report on Ultratech Cement
Adjusting for Century performance, UltraTech’s results were below our estimates. Revenues for the quarter were recorded at Rs 9,254 crore (Adjusted revenues Rs 8383 crore vs. I-Direct estimates of Rs 8,475 crore). Volumes declined by 1.7% YoY to 17.8 MT (Adjusted volumes 16.04 MT vs. I-Direct estimates of 15.9 MT). Led by favourable pricing environment and increasing retail sales, the company achieved a 6.1% growth in realisations to Rs 5208/t. EBITDA margins expanded 377bps YoY to 19.6% on the back of improved realisations (Adjusted EBITDA margins – 21.6% vs. I-Direct estimates of 22.8%). EBITDA for the quarter stood at Rs 1,813 crore, growing 29.2% YoY led by margin expansion. (Adjusted EBITDA - Rs 1813 crore vs. I-Direct estimates of Rs 1,929 crore). UltraTech reported a 72% rise in PAT to Rs 639 crore (Adjusted PAT at Rs 739 crore vs. I-Direct estimates of Rs 847 crore). In its board meeting the company also received approval for adding 3.4 MT of grinding capacity (2.2 MT Greenfield capacity in Odisha and 0.6 MT brownfield addition in Bihar and West Bengal).
As seen in the earlier acquisitions, the management’s ability to turn around the acquired assets provide confidence in the company and we expect similar performance even in the newly acquired Century assets. With deleveraging on cards, on the back of strong cash-flows and expectations of recovery in the cement demand from the 2nd half, we continue to remain positive on Ultratech. We value the company at ~14x FY21E EV/EBITDA and arrive a target price of Rs 5,350.
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