ICICI Direct's research report on UltraTech Cement
Cement demand improved and remained buoyant in Q2FY21 as well, mainly contributed by rural segment. North, east and central regions showed a healthy pick-up throughout the quarter whereas demand in south and Maharashtra region saw a late recovery. The company ended Q1FY21 with 69% capacity utilisation. Of the total sales volume, retail sales contribution improved to 71% vs 66% last year. However, it came down from 78% in Q1FY21 due to pick-up in demand from infra segment. On the cost front, the company reduced fixed overheads by 14% YoY during the quarter and achieved cost savings of Rs 450 crore in H1FY21 itself against targeted annual savings of ~Rs 500 crore. Further, with the help of low cost petcoke inventory ($71/t) and reduction in other costs, total cost of production (CoP) came down by 7.4% YoY to Rs 3887/t (flat QoQ). Thus EBITDA/t improved sharply by 30% YoY to Rs 1329/t. In terms of acquired assets, Nathdwara unit operated at 60% utilisation with EBITDA of Rs 1500/t whereas Century assets operated at 68% with an EBITDA of Rs 700/t. The plants at present are running at over 80% utilisation on companywide capacity, which clearly indicates strong demand momentum to in Q3FY21 as well. While the rise in petcoke and diesel prices possess risk to further margin expansion, the various efficiency measures initiated by company would continue provide cushion against risk of sharp increase in the CoP, going forward.
UltraTech has showed its capability to successfully integrate the acquired assets and protect its B/S in tough time as well. Its pan-India presence, strong management pedigree should augur well in future. Thus, we maintain our BUY rating with revised TP of Rs 5,350 (i.e. at 13.5x FY22E EV/EBITDA).
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