UltraTech Cement rating – Buy: Ebitda was in line with estimate

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UltraTech Cement’s (UTCEM) Q4FY22 consolidated Ebitda at Rs 30.8 bn (down 16% y-o-y), although in-line with our estimates, was higher than consensus. Consolidated volumes were broadly flat y-o-y while Ebitda/te grew 6% q-o-q to Rs 1,110/te (I-Sec: Rs 1,116/te). Management indicated current cement prices are higher by nearly Rs 30/bag vs average of Q4FY22 sufficient to pass on Q1FY23 cost escalations q-o-q, ceteris paribus.

UTCEM is likely to post 10% volume CAGR over FY22-24E as it expands capacities to ~130mnte by FY23E. We believe UTCEM with its large pan-India diversified market presence, premium brand positioning, timely capacity creation and increased cost efficiencies is better placed to gain market share/improve margins in medium term. Factoring in higher cost escalations, we cut our FY23-24 Ebitda estimates by 18-5% and reduce our target price to Rs 8,500/sh (earlier: Rs 9,080) based on 15x FY24e EV/E. Maintain Buy. Key risk: Lower demand/ pricing and sharp cost escalations.

Earnings volatility to remain high in near term owing to significant rise in fuel costs: We believe UTCEM shall try and sustain near-term Ebitda/te at ~ Rs 1,100/te as seen during the past two quarters amidst sharp cost increases. Our sensitivity analysis suggests UTCEM trades at ~12x FY24E EV/E assuming FY24E Ebitda/te at ~Rs 1,350/te (similar to FY21 Ebitda/te) and ~15x FY24E EV/E assuming FY24E Ebitda /te at current levels of ~Rs 1,100/te. We factor in Ebitda/te at Rs 1,126/te and Rs 1,385/te in FY23E and FY24E, respectively vs Rs 1,222/te in FY22.

Net debt declined from Rs 63.5 bn in FY21 to Rs 37.5 bn in FY22 as OCF of Rs 90 bn (76% conversion) and 9 bn from sale of non-core asset was utilised for 61.4 bn capex and Rs 10.7 bn dividend. UTCEM is liekly to become zero debt company in FY23 and turn net cash (60 bn) in FY24E as it generates Rs 220 bn OCF and incurs capex of Rs 100 bn in FY23-24E.

Expansion on track: UTCEM has added 3.2mnte cement capacity in FY22E. In FY23E, ~16.5mnte of additional cement capacity is likely to go operational in a phased manner. UTCEM shall spend `40-50 bn (including WHRS) in FY23E to achieve overall capacity of 130mnte by FY23-end.

India operations revenue grew 8.4% y-o-y to Rs 149 bn: Q4FY22 volumes were flat y-o-y (+20.7% q-o-q) to 26.6mnte (~90% utilisation). Mgmt remains optimistic about demand growth despite significant price hikes and commented Apr’22 demand is higher y-o-y. Grey cement realisation increased ~2% q-o-q and 7.8% y-o-y to Rs 5,082/te. RMC revenue grew 27% y-o-y to Rs 8.5 bn, while white-cement/putty revenue was down 2% y-o-y to Rs 5.4 bn.