UltraTech Cement (UTCEM) posted broadly in-line performance for Q3FY23. EBITDA grew by 25% QoQ, driven by strong volume growth (up 11.4%) and higher EBITDA/t (up 12%). Volumes grew by 12.5% YoY to 24.8mn MT, in-line with estimates. Demand momentum was robust across regions and segments. Although 12% QoQ improvement in EBITDA/t to Rs866 was marginally better than estimated by analysts at IIFL Securities, they note that realization growth (+0.6% QoQ) lagged their expectation of 2-3% increase. But, better cost management (lower lead distance + operating leverage) resulted in marginal cost decline (-1.8% QoQ). Power and Fuel costs were flat QoQ, as 10% decline in pet coke prices was offset by higher coal prices.
Management commentary (cost reduction + strong volume growth) implies further improvement in Q4. Although company has cautioned against any sharp decline in fuel prices even in the medium term, analysts at IIFL Securities see low risk to their FY25 EBITDA/t estimate of Rs1,225. UTCEM is well-placed to capitalize on the likely demand upcycle in near term. They value UTCEM at 15x 2YF EV/EBITDA and have retained their Buy recommendation on the stock.
