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First Cut Analysis: BUY on UltraTech - Healthy results despite Covid impact - HDFC Securities

Posted On: 2020-05-20 22:10:49


Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities.

UltraTech 4QFY20 First Cut - Healthy results despite Covid impact; Balance sheet strengthening. BUY
(TP Rs 4850, CMP Rs 3545, MCap Rs 1023bn)

During 4QFY20, UltraTech's vol suffered (down 16% YoY) owing to Covid impact. However, stable pricing and lower energy cost drove unitary EBITDA expansion by 14% YoY to a solid Rs 1139/MT (even up 13% QoQ), thus moderating consol EBITDA decline to 4% YoY. Subsequently, higher treasury gains and lower tax rate drove up APAT by 6% YoY. During FY20, strong profits (EBITDA/APAT up 28/51%), along with working capital release and flattish capex boosted free cashflows and its net debt fell 25% YoY to Rs 16.9bn. Net debt/EBITDA cooled off to 1.8x vs 3x YoY.

Consolidated 4QFY20:

- Revenue declined 13% YoY (+4% QoQ) to Rs 107.46bn (5% lower vs our est)
- EBITDA fell 4% YoY (+16% QoQ) to Rs 24.43bn (2% lower vs our est)
- APAT rose 6/41% YoY/QoQ to Rs 11.31bn (10% ahead of our est).

Weak cement sales, higher realisation YoY: Cement sales vol fell 16% YoY (+3% QoQ) to 21.4mn MT, driven by sales loss in March end. Utilisation fell to 74% vs 89% YoY and remained flat QoQ. Blended NSR rose 1% QoQ to Rs 5012/MT on price hike taken in 4Q, thus bolstering YoY gain at +3%.

Flattish opex further bolstered op margin: Input cost declined 14/9% YoY/QoQ on falling fuel prices, increased blended cement production and lower fuel consumption intensity. Reported logistics cost rose 8/11% YoY/QoQ on higher lead distance. Fixed costs per MT rose 23% YoY, on lower utilisation. Thus, avg unitary opex stood flat YoY at Rs 3873/MT and unitary EBITDA remained strong at rose Rs 1139/MT (+14/13% YoY/QoQ) (vs our est of Rs 1120/MT). However, with lower volumes, EBITDA fell marginally YoY.

Other income grew 52% YoY on higher treasury gains. Continued debt reduction led to flattish int expense YoY. Depn went up 5% YoY on capacity increase. However, lower EBITDA led to PBT decline 4% YoY. Adj tax rate stood lower at 23% vs 30/29% YoY/QoQ. This led to APAT growth by 6% YoY. The co booked Rs 21.1bn as deferred tax liability reversals in 4Q, factoring in the adjustments due to changes in the cop tax rate. We have excluded the same from APAT (and considered as exceptional for 4Q). Reported PAT rose 2x/3.6x YoY to Rs 32.5bn.

Robust FY20 performance: Annual total sales fell 4% YoY on sharp dip in 4Q. However, NSR grew 5% YoY on better pricing during the year. Falling energy cost drove 1% unitary opex decline, thus bolstering unitary EBITDA by 34% YoY to Rs 1142/MT (All time high for UltraTech). Thus consol rev/EBITDA/PAT grew 1/28/51% YoY.

Strong cashflows drives debt and gearing ratio reduction: Its Gross/Net debt reduced by 10/25% YoY to Rs 22.9/16.9bn resp. Net debt/EBITDA reduced to 1.8x vs 3.0x YoY.

We currently have a BUY rating with a TP of Rs 4850/sh (at 15x FY22 consol EBITDA). We will review the nos in a follow up note.

Shares of ULTRATECH CEMENT LTD. was last trading in BSE at Rs.3545 as compared to the previous close of Rs. 3439.25. The total number of shares traded during the day was 31166 in over 5289 trades.

The stock hit an intraday high of Rs. 3590 and intraday low of 3434.25. The net turnover during the day was Rs. 109787084.


Source: Equity Bulls

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