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UltraTech Cement Ltd
Cement | NSE : ULTRACEMCO
UltraTech is the largest cement manufacturer in India with a domestic capacity of 114.5 MT (over 23% of total market) with a leadership position in most regions (excluding east). It has grown through organic and inorganic routes and added ~30 MT of capacity in the last three years.
UltraTech Cement reported operationally good results for Q4FY22 as the impact of higher fuel cost was not visible in the quarter.
Market leadership, strong brand with highest retail presence and robust balance sheet justifies UltraTech ’s premium valuations.
UltraTech has successfully integrated acquired assets while protecting its b/s. Given the positive outlook, the new capex targeting central and east region would address the issue of capacity constraint post FY24E. With a target to become net debt free by FY24E and with average RoCE of 15%+, we remain positive on company and maintain BUY rating with unchanged TP of ₹ 8,000/share (i.e. 16.5x FY23E EV/EBITDA).
Apart from UltraTech, we also like ACC.
| Particulars (₹ crore) | Amount |
|---|---|
| Market Capitalization | 279,562.1 |
| Debt | 9,891.0 |
| Cash | 155.0 |
| Enterprise Value | 202,502.0 |
| 52 week H/L (₹) | 10,526.0/7,300.0 |
| Equity Capital | 288.7 |
| Face Value (₹) | 10.0 |
| Particulars | FY19 | FY20 | FY21 | FY22 | 3 Year CAGR | FY23E | FY24E | 2 Year CAGR (FY21-FY23E) |
|---|---|---|---|---|---|---|---|---|
| Net Sales (| crore) | 39,933.0 | 40,634.0 | 43,188.0 | 50,663.0 | 8.3 | 61,173.0 | 65,976.0 | 14.1 |
| EBITDA (| crore) | 7,076.0 | 8,652.0 | 10,964.0 | 10,936.0 | 15.6 | 10,896.0 | 13,677.0 | 11.8 |
| EBITDA (%) | 17.7 | 21.3 | 25.4 | 21.6 | - | 17.8 | 20.7 | - |
| Adjusted PAT (| crore) | 2,530.0 | 4,448.0 | 5,506.0 | 7,067.0 | 40.8 | 5,688.0 | 7,593.0 | 3.7 |
| EPS (|) | 87.7 | 154.1 | 190.8 | 244.9 | - | 197.1 | 263.1 | - |
| EV/EBITDA | 29.1 | 23.7 | 18.2 | 17.9 | - | 17.6 | 13.7 | - |
| EV/t ($) | 265.0 | 263.0 | 217.0 | 214.0 | - | 210.0 | 205.0 | - |
| RoNW (%) | 7.6 | 11.6 | 12.7 | 14.4 | - | 10.6 | 12.7 | - |
| RoCE (%) | 9.0 | 11.4 | 14.7 | 14.2 | - | 13.6 | 16.6 | - |
· Domestic sales volumes broadly remained flat YoY at 26.3 MT, up 20.3% QoQ while blended realisations were up 9.6% YoY to | 5,758/tonne, up 1.1% QoQ. Capacity utilisation was at 90%
· Demand across all regions remained muted except central/south that recorded positive trend during Q4FY22
· Cost of production broadly remained flat QoQ (up 18.1%YoY) to | 4641/t due to lower employee and other costs. Further, with the usage of domestic linkage coal (~20% share) and usage of low cost inventory (45-50 days)
· As a result, EBITDA/t improved sequentially by 10.1% (down 15.4% YoY) to | 1117/t (vs. I-direct estimate: |1000/t)
· Net profit was higher due to lower interest expense and positive tax adjustments
· During FY22, the company commissioned Bara grinding unit of 2 MT and 1.2 MT in east, taking its total cement manufacturing capacity in India to 114.55 MT. The company has also commissioned 11 MW of WHRS and 48 MW of solar power. With this expansion, the company’s green energy share has gone up to 19.7% vs. 16% in Q3.
· Demand Outlook: The government plans to complete further 25,000 km of roads, launch 220 new airports by 2025. On the housing front, the government had planned 8 million low-income houses for FY23. Housing inventory across cities had come down to 32 months by the end of 2021 compared to 55 months a year ago. While the long-term demand outlook stays intact, the near-term cost headwinds may lead to some moderation in demand. The current cement prices are hovering at | 30/bag, higher than the exit rate of Q4FY22. If it sustains then it should help the company to mitigate the cost inflation impact in the forthcoming quarter
· Cost of production: The average energy cost for the company came in at $164/tonne (up 48% YoY, 10% QoQ) against energy index cost of $222/tonne for Q4FY22. At the current fuel rate of $300/tonne, the company expects P&F cost to increase 10% in the next quarter. Fuel mix of petcoke/imported coal/domestic coal is now at 40:40:20
· To focus on improving fuel blending and increasing WHRS capacity. Commissioned 11 MW WHRS and 483 MW of solar power. With this expansion the company’s green energy share has gone up to 19.7% from 16% in Q3. The company has set a target to achieve green energy mix target of 34% by 2024 and 100% renewable energy by 2050
· Cement prices: The company undertook a price hike in both trade and non-trade segments. At present, cement prices are higher by ~| 30 per bag as compared to prices of |360/bag in March 2022.
· Expansion: On track to reach 130.9 MT by FY23E. Commissioned Bara grinding unit of 2 MT, taking its total cement manufacturing capacity in India to 114.55 MT. Balance capacities of 16.3 MT to get commissioned in FY23E. Capex for FY23E including maintenance capex would be | 4-5000 crore. Acquisition: The company acquired RAK Cement Company for white cement and construction materials PSC (RAKWCT), a company listed in Abu Dhabi and Kuwait Stock Exchange. Synergies with Birla White will boost its market leadership. The company had put on hold the capacity expansion plan in India of ~| 978 crore, as it would have access to 9 lakh MT of clinker capacity and 6 lakh MT of white cement capacity from RAKWCT. Currently, they are operating at 65% utilisation and their EBITDA margins are ~19.5%
· B/S strength: Retired | 2602 crore of long term debt in FY22. Net D/E is now at 0.32x. Going forward, it would maintain its net debt to EBITDA at ~0.5x
With regards to non-core assets as a part of acquisition of Nathdwara Cement, the company has now sold off the non-core business in Europe
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