We initiate coverage on two prominent names in these regions: Birla Corporation (BCORP, target price Rs 1,191) and Heidelberg Cement (HEIM, target price Rs 234) with BUY recommendations. Top picks- UltraTech and Ambuja (large caps), JK Cement and Birla Corp (mid-caps). We believe the north and central cement markets in India are in a sweet spot. Despite muted demand, cement prices in these regions have been buoyant, driven by troika of considerable regional consolidation, high clinker utilisation, and a limited influx of new entrants. Companies in these regions are also enjoying low input cost inflation (high PPC sales and higher usage of low cost WHRS power). We believe these benefits will continue to sweeten profitability, validating our preference for companies in these regions

Lower than expected volume decline; realizations improve QoQ: UltraTech's consolidated cement sales volume declined 31.6% YoY (-31.7% QoQ) to 14.7MT. Disruption in operations was on account of suspension of operations across the company's facilities from 23/03/2020, in the wake of the COVID-19 pandemic. Operations resumed in a phased manner from 20/04/2020 and capacity utilization during the quarter was in the range of 60-65%. Company is witnessing demand largely in the retail & rural market, resulting in retail mix reaching an...

The fall in realizations were mitigated by fall in expense per tonne: The company's realizations came down during the quarter, which was mitigated by significant fall in expenses for the company, e.g. raw materials...

Volumes to bottom out in FY21E; gain traction from FY22E FY21 is expected to be subdued for the cement industry due to a significant loss of business with Q1 being a strong quarter. On the one hand, rural and semi-urban demand has been supportive since lifting of the lockdown while, on the other, construction and infrastructure activities are expected to lose steam in coming quarters unless labour shortage and liquidity conditions improve. Rural demand in FY21E could be robust on the back of expectations of normal monsoon and pick-up in individual housing building...

Tight fisted cost control leads to outperformance NBIE Values your patronage- Vote for The Team in the Asia Money poll 2020. Click Here Ultratech Cement Ltd. (UTCEM) reported extremely good set of numbers for 1QFY21, driven by lower than expected operating cost and better pricing. Despite lower volume, due to the ongoing pandemic, Ultratech has managed to post quarterly EBITDA/mt of Rs1,416, which is the highest in over a decade. Volume declined by 32% YoY to 14.7mn mt due to lower operating days (68 days in this quarter) amid the ongoing covid-19 induced lockdown. Cement...

Century cement's EBITDA/t >Rs900/t. Cost fell by Rs105/t QoQ 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...

of taxes) declined 33% year-on-year (YoY) to Rs 7533 crore in in the first quarter of the financial year 2020-21 (Fy21). EBITDA fell 24% to Rs 2353 crore in Q1 June 2020 from Rs 3084 crore in Q1 June 2019. Profit before tax in Q1 FY21 stood at Rs 1314 crore, down by 31% from Rs 1893...

28 July 2020 UltraTech Cement (UTCEM)s result highlights the execution of its planned cost rationalization and de-leveraging roadmap. Despite negative operating leverage (volumes down 32% YoY), the company reported the highest ever EBITDA/t of INR1,416, led by cost reduction across heads of expenditure. Net debt also declined by INR22b (13%) QoQ to INR147b (1.7x EBITDA). We raise our consolidated PAT estimate by 23%/11% for FY21/FY22 after factoring lower operating costs as well as lower finance cost (on account of faster de-leveraging). Besides strong FCF, non-core asset sales should further aid de-leveraging. Reiterate FCF generation stood at INR22.0b, achieved through a working capital release of INR7.9b. However, management does not foresee further reduction in working capital in FY21. Cement prices have declined 45% MoM in July due to seasonal weakness. Century assets recorded EBITDA/t of >INR900/t, with cost reduction of INR105/t QoQ and utilization at >70% in May and June.

Focus on conserving cash and improving efficiency Ultratech in its FY20 annual report seems focused on conserving cash and further improving its operating efficiency. After the completion of the ongoing capex, the focus is shifting towards deleveraging and also to plug the gap between operating parameters of its own plants and recently acquired assets from Century. The management is optimistic that the current economic downturn is short term in nature and Ultratech is fully equipped to deal with it through internal resources. One reassuring thing we found in the annual report was that a survey conducted by the company found that 86% of its...

UltraTech Cement Ltd. is the largest cement manufacturer in India, and is involved in production of grey cement, white cement, and Ready Mix Concrete (RMC). It has 22 operational integrated plants, 23 grinding units,...

UltraTech Cement Ltd. is the largest manufacturer of grey cement, Ready Mix Concrete (RMC) and white cement in India. It is also one of the leading cement producers globally. The company has a consolidated capacity of 117.35 Million (including Bara) Tonnes Per Annum (MTPA) of grey cement. UltraTech Cement has 23 integrated plants, 1 clinkerisation plant, 27 grinding units and 7 bulk terminals, post the Century merger. Its operations span across India, UAE,...

down in line with the government's directives. The consolidated sales volume (including overseas) declined 15.7% to 21.44 million tonnes (mt), while realization increased by 3% to Rs 5,012 per tonne....

We expect FY21E consol vol to fall 16% on sharp loss in 1H, however, we build in 21% recovery in FY22E. The profit impact in FY21 should be moderated by falling energy cost and lower discretionary spends. We maintain BUY with a TP of Rs 4,720 (15x FY22 consol EBITDA). We continue to ascribe it premium valuations (10% higher vs its 10yr avg) for its capacity & cost leadership and balance sheet discipline. We maintain BUY rating on UltraTech Cement with a TP of Rs 4,720 (15x FY22 consol EBITDA). In FY20, UltraTechs profits surged, and it also reduced its working capital and debt on books. In FY21E, we expect falling energy costs to moderate the impact of an expected sharp 16% vol decline. However, we build in 21% vol recovery in FY22E (owing to its robust distribution) as demand normalises to drive earnings rebound in FY22E. In Q4FY20, amid sharp 16% vol fall (covid impact), falling energy costs and increased fixed cost controls boosted op margin to Rs 1,139/MT (+14% YoY).

Despite lower operating leverage (volumes down 16% YoY), operating cost per ton increased only 1% YoY (-2% QoQ) which coupled with better realization drove a 14% YoY (and 13% QoQ) increase in EBITDA/t to INR1,138. Strong FCF helped the company reduce net debt sharply to INR169b (implying 1.55x net debt/EBITDA). Our FY21/FY22 estimates are broadly unchanged, and we reiterate expect net debt to decline further even in FY21 as the company has curtailed capex for the year and seeks to reduce cost as well. Conso revenue / EBITDA / PBT at INR107b/INR24.4b/INR14.6b came in lower by 13%/4%/4% YoY and by -3%/-11%/-14% against our estimate. Volume declined 16% YoY to 21.4mt (in-line); however, the decline was higher than peers Shree (-5%), Ambuja (-10%), and ACC (-12%), implying market share loss. EBITDA/t at INR1139/t (+14% YoY, +13% QoQ) was weaker than expected due to lower realization at INR5012/t (+3% YoY, +1% QoQ) v/s our est.

Driven by lower raw material cost, UltraTech (UTCEM) EBITDA came 15% higher than our estimate in Q4FY20. For the quarter EBITDA/t increase of Rs200 QoQ to Rs1190, was supported by realization increase of 1% QoQ and lower opex by 3% QoQ. UTCEM has witnessed sharp rebound in its utilization in May-20 and at company level plants are operating at utilization of 65-70%. Though, utilization is uneven with West region plant utilization is weak and East region is highest at 90%+. We understand, higher utilization is led by pent up and rural demand before monsoon commence. Balance sheet deleveraging has continued, UTCEM consolidate net debt reduced by Rs52bn to...

UTCEM reported Q4FY20 earnings in line with our and consensus estimates. It underperformed industry with sharper fall in volumes. However, we believe that it was calculated move to sacrifice volumes in order to expand realisations of Century cement through gradual migration to Ultratech brand. Century cement's realisations improved by Rs160/t with shift to Ultratech...

Ultratech's CFO Mr. Atul Daga concluded the 4QFY20 conference call with an adage, When the going gets tough, the tough gets going'. Clearly, one cannot have more tougher times than the current one with large part of the country in lockdown and economic recession staring in the face. Given this background, various measures undertaken to restrict capex, reduce fixed and operating costs and maximize its brand and geographic reach augur well for the company. Despite near term weakness in demand and earnings, we expect the company to continue deleveraging in FY21 as well. While it is still early to comment or predict demand in FY21, we believe that relatively higher pricing and pre monsoon construction activities will...

Near term pressure but expect FY21E to be better than peers The company is witnessing near term challenges due to the Covid-19 pandemic. LTI's exposure to the manufacturing and energy vertical, which accounts for ~28.2% of total revenues is expected to be under pressure due to lower oil prices and client specific challenges. The company believes BFSI (that is ~45% of revenues) would face challenges in Q2FY21E and Q3FY21E. In addition, pricing pressure, delay in deal ramp ups and pressure on utilisation in the near term is expected to keep revenues under pressure. As...

Operating performance: EBITDA was Rs 24.43 bn (3.9% y/y)inlinewithourestimatesofRs24.4bn.EBITDA/te stood at Rs 1,139, improving by 14% y/y led by stable pricing scenario and reduction in clinker production cost (which declined by 13.7% y/y). EBITDA/te for Century...