Q3FY20 result highlights
Conf call highlights: (1) 3Q20 industry demand declined by 1-2% yoy in 3Q20, however, the same has picked up in Dec-19 and is expected to continue on back of uptick in infra spend (2) Cement price hikes taken in Jan-20 in Maharashtra, North and East, while South is likely to see hikes as demand is improving (3) Century: Dec-19 utilisation was higher at 79%, 3Q20 EBITDA/t was at Rs270 (nil in 2Q20) as only 55% volumes shifted to UTCEM brand (85% by 2Q21), higher cost structure (incl Rs310mn one-time costs) and negative op. leverage. Century asset EBITDA/t to improve to Rs1000 by Sept-21. (4) Focus on deleveraging; not bidding for Emami: UTCEM is not bidding for Emami cement assets due to unfavourable valuations and will be deleverage further as seen in YTD-20, wherein net debt has reduced by Rs35bn to Rs186bn. (5) Capex: 2mtpa GU Bara plant commissioned in Jan-20, with balance 2mtpa GU to be commissioned in Sept-20. The 3.4mtpa East GU and 2.1mtpa clinker unit (Super Dalla) in East to be operational by 4Q21.
Impact on financials: No change to FY20/21 earnings - Rs137/179
Valuation and view
UTCEM has been impacted by the overall demand weakness, which has not been able to offset the decline in Century volumes (in transition) and driven down realisations. However, sustained cost efficiencies (higher petcoke usage, lower lead distances, higher usage of green power, etc) and deleveraging has enabled UTCEM to sustain the growth momentum during the quarter. While Century asset turnaround is taking long than anticipated, the next 3 quarters should see sharp improvement led by cost efficiencies, re-branding, etc. Concurrently, UTCEM’s sustained focus on costs as also deleveraging would drive strong 40% earnings CAGR over FY19-21E. Overall, we expect a gradual uptick driven by increased infra spend and affordable housing to drive volume growth and thereby realisations. We believe UTCEM’s decision to not bid for Emami assets would alleviate investor concerns on likely stress on balance sheet and drive a re-rating. Considering, the earnings momentum, scale and efficient operations, we believe valuations are attractive (12.4x FY21E EV/EBITDA and US$178 on EV/t). Outperformer.
UltraTech Cement Limited is engaged in the business of cement and cement-related products. The Company manufactures a range of products that cater to construction needs from foundation to finish, including Ordinary Portland Cement (OPC), Portland Blast Furnace Slag Cement (PSC), Portland Pozzolana Cement (PPC), white cement and white cement-based products, ready mix concrete, including specialty concrete, building products, such as aerated autoclaved concrete (AAC) blocks and joining mortars and a host of others in retail formats. Its geographical segments include India and Rest of the World. The Company focuses on various areas, including alternative fuels, waste heat recovery systems, carbon dioxide emission reduction, waste management, water re-cycling and bio-diversity management. It has over 10 integrated cement units, approximately 10 grinding units, a white cement unit, a wall care putty, over five bulk terminals and over 100 ready mix concrete units.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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