Buy UltraTech Cement; target of Rs 4850: ICICI Direct

ICICI Direct is bullish on UltraTech Cement has recommended buy rating on the stock with a target price of Rs 4850 in its research report dated July 29, 2020.

Broker Research

August 03, 2020 / 16:20 IST

ICICI Direct's research report on UltraTech Cement

UltraTech Cement reported a better than estimated Q1FY21 performance. Cement demand improved and remained buoyant since lifting of lockdown. The company ended Q1FY21 with 46% capacity utilisation. East and central plants operated at healthy capacity utilisation while demand in western regions remained weak. Bulk of cement has come from IHB segment in rural and semi urban areas while demand in urban areas remained weak due to labour migration and localised lockdowns. Realisations across all regions stayed healthy. On the cost front, UltraTech reduced fixed overheads by 21% in the quarter. This and higher realisations, led to a sharp rebound in margins in the quarter. On a sustainable basis, the company is targeting a reduction of fixed overheads by 10% leading to annual saving of ~Rs 500 crore. Currently, plants are running at 60-65% utilisation on companywide capacity. With improved liquidity position (led by reduced w/cap need, demand recovery), the company has now revised its capex guidance upwards to Rs 1500 crore for FY21E vs. earlier guidance of Rs 1000 crore.

Outlook

UltraTech has sailed through tough times in the past and also managed to protect its B/S despite making large acquisitions. The management focus on gaining retail share, cost optimisation and better integration of acquired assets has improved overall performance in this challenging environment. Its pan-India presence, combined with management pedigree and B/S strength also augur well for long-term growth. Thus, we maintain our BUY rating with a revised target price of Rs 4,850 (i.e. at 13.5x FY22E EV/EBITDA).

For all recommendations report, click here