UltraTech Cement - Company Update - ICICI Direct

Against the backdrop of weak sentiments due to the pandemic, UltraTech's operating performance in H1FY21 improved sharply led by strong demand from rural segment, better pricing environment and benign costs. The improved outlook also led to reinstatement of capex plans by the company that were halted earlier post imposition of lockdown in April 2020. Utilisation also crossed 80% during October-November 2020 vs. 69% in Q2FY21 with plant utilisation in eastern and central region remaining even higher supported by strong demand. To cope with the issue of capacity constraint in future, the company has announced 12.8 MT new capacity addition. This involves capex of Rs. 5477 crore i.e. capex of <$60/t, which is below industry replacement cost of $100/t as 72% of capacity is brownfield. The expected IRR on these new capacities is ~15% vs. current RoCE of 11.4% due to lower capex per tonne. With these expansions, UltraTech's total capacity would reach ~131 MT by FY23E with long term plan to be at 160 MT. We believe these new capacities would not only improve its reach and network but also aid in reduction in lead distance as well. Further, deployment of strong operating cash towards capacity expansion in an efficient manner along with deleveraging would improve return ratios. Hence, we continue to remain positive on the company from a long term perspective.

Valuation & Outlook

Given the positive outlook, the newly announced capex targeting central and east region would address the issue of capacity constraint post FY24E. Furthermore, organic expansion at lower capital costs (US$60/t) will boost return ratios (new capacity to generate 15%+ IRR). With a target to become net debt free by FY23E and 27% earnings CAGR in FY20-23E, we believe valuations of 10.6x FY23E EV/EBITDA and US$156 EV/t are attractive.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_UltraTech_CoUpdate_Dec20.pdf

Shares of ULTRATECH CEMENT LTD. was last trading in BSE at Rs.4979.45 as compared to the previous close of Rs. 5147.95. The total number of shares traded during the day was 35245 in over 6825 trades.

The stock hit an intraday high of Rs. 5102.4 and intraday low of 4951.6. The net turnover during the day was Rs. 176435715.

Source : Equity Bulls

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