Q1FY24 Review: UltraTech Cement: From strength to strength

24 Jul 2023 , 01:46 PM

UTCEM reported strong operational performance with industry leading volume growth of 20% YoY. The Ebitda remained flat YoY as benefits of lower fuel prices are still not captured– management remains confident of improvement in profitability from H2FY24. On capacity additions, company targets to add 10mtpa in FY24 and 22.5mtpa in FY25/26 taking its total capacity to 159m MT. Such timely capacity additions improves earnings visibility. Analysts of IIFL Capital Services maintain BUY and value the stock at 15x 2YF EV/Ebitda.

Strong operating performance: 

UTCEM reported a strong volume growth of 20% YoY to 29m MT – achieving plant utilisation of 88% vs. 83% YoY. Though volume growth was broad based, company highlighted that the trade segment (housing) in rural India (45% of total volumes) grew faster at 24% YoY. Despite strong volume growth, the operating profits remained flat YoY (2% miss) at Rs29bn owing to sharp decline in profitability (Ebitda/t fell 17% YoY to Rs1003). The reduction in power & fuel cost (down 2.5% QoQ to Rs1544) was below estimates as petcoke consumption was lower during the quarter (42% vs. 52% QoQ) due to availability issues.

Profitability to improve in H2; capacity additions on track: 

Company expects profitability to improve from H2FY24 driven by 1) reduction in fuel costs- spot petcoke price are at US$125/MT vs. consumption cost of US$178/MT, this would reflect in cost by end of Q3, and 2) cement prices likely to go up post monsoons (marginal price hikes were seen in North and West in July; while prices in East and South remained under pressure). In terms of new capacity, UTCEM announced additional 4mtpa addition through de-bottlenecking in FY24 – this would increase to 137m MT by FY24 end (10m MT addition in FY24). In addition, work on 22.5mtpa capacity addition (phase-2) is progressing well and is likely to commission by 2025.

Maintain estimates; re-iterate BUY: 

UTCEM given is pan-India presence and strong brand pull is likely to grow faster than the industry – in this regards its timely capacity additions well for volume growth. Company’s efforts to increase share of green power to 60% vs. 22% now and higher focus on blended cement (currently 70%, consumption of composite cement picking up) would aid profitability growth. Analysts of IIFL Capital Services believe UTCEM is well placed to capitalise on the current upcycle in the sector. Maintain BUY.