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Maintain BUY on UltraTech Cement - Strong demand moderates impact of cost inflation - HDFC Securities

Posted On: 2021-10-21 09:35:52 (Time Zone: IST)

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

We maintain BUY on UltraTech (UTCEM) with a target price of INR 8,490/share (16x Sep'23E consolidated EBITDA). We continue to like the company for its strong growth outlook and opex & balance sheet management. UTCEM's consolidated revenue/EBITDA/APAT in Q2FY22 increased 16/1/7% YoY to INR 120.2/27.1/13.1bn respectively. Strong volume uptick and healthy pricing YoY offset the impact of soaring input costs. Unitary EBITDA fell 6/18% YoY/QoQ to INR 1,254/MT, hit by cost inflation. The company is hopeful that strong demand outlook should allow them to pass on the soaring energy costs, leading to a margin uptick.

Q2FY22 performance: Consolidated cement sales volume rose 8% YoY to 21.6mn MT (up 1% QoQ) on strong demand recovery. Grey cement volume grew 7% YoY and white/putty volume rose 17% YoY. Opex rose 9/12% QoQ/YoY to INR 4,299/MT, especially due to rising energy cost and increased sales share of white/putty in Q2. For grey cement, input costs rose by INR 100/MT QoQ on rising fuel prices. Other expenses also went up by ~INR 150/MT QoQ, mainly on annual maintenance and rising packing cost. Employee cost also surged ~INR 40/MT QoQ due to pay hikes (which were due last year). Overall, grey cement costing also went up on account of disruption in the company's overseas operations. Net debt is at INR 63bn (flattish vs Mar'21) as it used its cash to reduce debt on its books.

Demand and pricing environment: The company guides for 6-8% volume growth YoY in H2FY22, implying FY22E volume growth at ~13-15%. Cement prices are back to pre-monsoon level (INR 10-15/bag hike in Oct), and will increase further to pass on the cost inflation, as per the company. It also noted that energy cost would rise by INR 200/MT QoQ in Q3FY22.

Capex and outlook: UTCEM commissioned 0.6 mn MT each SGU in Bihar and WB in Oct'21 out of its 19.5 mn MT planned expansion. Its Dalla Super clinker plant is expected by the end of Q4FY22. During Q2, UTCEM commissioned 12/21 MW WHRS/solar power taking total WHRS/renewable power capacity to 137/169MW. It is targeting 34% green energy mix by 2024 (~15% currently). We have kept estimates unchanged for FY22/23/24E. We reiterate our BUY rating with a target price of INR 8,490/sh (16x its Sep'23E consolidated EBITDA).

Shares of UltraTech Cement Limited was last trading in BSE at Rs. 7135.65 as compared to the previous close of Rs. 7174.90. The total number of shares traded during the day was 125445 in over 5533 trades.

The stock hit an intraday high of Rs. 7307.70 and intraday low of 7094.60. The net turnover during the day was Rs. 899811322.00.

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