MOSL: MOrning India (27/December/19): 1. UltraTech Cement (Demand outlook improving); 2. EcoScope (a. BRICS+: 4QCY19 - India vis-à -vis other emerging markets; b. Second round of ‘Operation twist’ by the RBI)
MOrning India (27/December/19): 1. UltraTech Cement (Demand outlook improving); 2. EcoScope (a. BRICS+: 4QCY19 - India vis-à-vis other emerging markets; b. Second round of ‘Operation twist’ by the RBI)
Today’s top research idea
UltraTech Cement: Demand outlook improving; Limited capex to reduce debt
We met UltraTech Cement's (UTCEM) CFO, Mr. Atul Daga for an update on the company's business and growth plans.
- Demand has been weak due to slowdown in construction activity, which should pick up from 4QFY20. However, FY21 should register a growth of 6%.
- UTCEM has announced a 3.4 MMTPA expansion in East India, which should get commissioned in 1HCY21. Also, the Bara unit should start soon, Super Dalla clinker could take another year to start operations.
- UTCEM plans to transition from Birla Gold (cement brand of CTIL) to the UltraTech brand in most states (except Chhattisgarh) by 1QFY21, which should improve realization by INR12-15/bag. Balance volumes should also gradually transition once up-gradation is completed at the 2 MMTPA plant at Baikunth, Chhattisgarh (an old plant).
- We estimate 26% CAGR for EBITDA and 48% CAGR for EPS over FY19-21. Driven by strong operating cash flows and reduction in interest cost, RoE/RoCE should improve by 550bp/420bp to 13.8%/11.2% over FY19-21. We value UTCEM at 14x FY21E EV/EBITDA to arrive at a target price of INR5,050 (implied EV/t of USD185/t on FY21 capacity). Maintain Buy.
Piping hot news
RBI to buy, sell Rs 10,000-crore G-secs via OMOs on Monday
As part of the Operation Twist, the Reserve Bank of India (RBI) on Thursday announced the simultaneous purchase and sale of long-tenor and short-tenor government securities respectively worth Rs 10,000 crore each, which will take place on Monday. The open market operations (OMOs) will be the second in the series as was expected by market participants who anticipate at least Rs 50,000 crore of OMOs.
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