UltraTech Cement Ltd. share price target

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...

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...

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.

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...

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...

Revenue and EBITDA broadly in line, however PAT above estimates. UTCEM posted 13.1% YoY de-growth in revenue to Rs107.5 bn due to 15.7% YoY volume decline to 21.4 mt which was partially offset by 3.0% YoY rise (+1.2% QoQ) in realization to Rs5,012/tn. EBITDA/ APAT grew (3.9%)/ 6.5% YoY to Rs24.4 bn/ Rs11.3 bn. We 0.9%/ (-1.3%)/ 2.1% revenue/ EBITDA/ APAT CAGR over FY20-22E led by (-15.1%)/ 20.0% volume growth and (-1.0%)/ 1.0% realization growth in FY21E/ FY22E. We expect EBITDA/tn to marginally cool off to...

UltraTech Cement's (UltraTech) standalone operational performance remained largely in line, while net profit beat was led by higher other income and lower income tax rate. The company's standalone net sales declined by 13.5% y-oy,affected by COVID-19 during March 2020 (Q4 volume declined by 16.5% y-o-y), while blended realisation improved by 3.5% y-o-y (up 1.2% q-o-q). Strong realisation along with contained operating expenses y-o-y (aided by a decline in power and fuel cost and lower raw-material costs) led to EBITDA/tonne surging by 11.8% y-o-y to Rs. 1,102. The company reversed net deferred tax liability of Rs. 1,803 crore, applying lower income tax rates on deferred tax assets/liabilities. Hence, reported...

Margin improvement to restrict reduction in EBITDA Improved realisations and cost benefit from lower crude levels, should lead to an improvement in profitability for most cement companies in Q4FY20E. Only Sagar Cement and Ramco Cement are expected to report lower profitability, as they predominantly cater to the south and eastern markets. I-direct cement coverage universe is expected to see growth of 14% in EBITDA/t to | 1,058/tonne and a 200 bps improvement in EBITDA margins to 21%. Thus, despite double digit decline in volumes, EBITDA of our...

Our channel check suggests average cement prices at all India level is up 2% MoM in Feb-2020. And cement sales increased by 5% YoY for Jan 2020 (latest data available). Despite high base of last year, cement demand growth is in positive territory since Nov-19. Uptick in the cement demand is driven by pick up in rural demand (good monsoon), commencement of Infra work (Indore, Bhopal metro, Coastal road mumbai). We expect cement demand growth of 1.5% for FY20, which implies 5% demand growth in 4QFY20. For FY21E we expect cement demand growth of 5-6% YoY. Over medium term, catalyst for cement demand are a) Infra...

UltraTech and JK Cement remain our top-picks in the sector. In our view, the recent surge in op margins for north/central/Gujarat (NCG) based cement companies is sustainable on structural tailwinds. Capacity consolidation these regions is further firming up and utilisation is also expected to hold above 80%. These should support strong pricing in the region to sustain, bolstering profitability outlook. Hence, we remain bullish on the companies with large exposure to these markets. The benefits of subdued petcoke and diesel prices should accrue to the whole industry.