MOSL: ULTRATECH CEMENT (Buy)-Beat led by higher-than-estimated realizations
​Ultratech Cement: Beat led by higher-than-estimated realizations
(UTCEM IN, Mkt Cap USD17.3b, CMP INR4091, TP INR4906, 20% Upside, Buy)
- Domestic volumes grow 18% YoY: 2QFY18 revenue rose 22% YoY to INR65.7b (est. of INR64.2b), as volumes grew 18% YoY due to acquisition of JPA assets. Volumes (incl. white cement and putty) rose 18% YoY to 13.14mt (+18% YoY).
- New assets turn EBITDA-accretive: Blended realization increased 4% YoY to INR5,001/t due to healthy pricing in its focus markets. Grey cement realizations rose 7% YoY to INR4,452/ton due to improved pricing across most markets. Power & fuel cost/t rose 14% YoY due to the impact of higher petcoke and coal prices. Freight cost increased 4% YoY due to a 7% YoY rise in diesel prices, partially offset by lead distance reduction. EBITDA thus increased 24% YoY to INR13.5b (est. of INR11.6b; EBITDA was higher than estimate due to better pricing), translating into EBITDA/ton of INR1,028 (-INR154/t QoQ, +INR50/t YoY) and margin of 20.6% (+0.3pp YoY; -3pp QoQ).
- Management commentary: 1) Rebranding exercise for acquired assets is complete, with pricing at par with UTCEM. 2) Petcoke has been consumed at the rate of USD90/t v/s spot rate of USD105/t.3) Industry growth for 2QFY18 would be in low-single-digit. 4) Grey cement realizations were flat QoQ.
- Valuation view: While in the short-term, the acquisition of JPA would be earnings-dilutive, we believe addition of ~31% of present capacity at virtually zero lead time is critical for a large-scale player like UTCEM to retain market share. Expanded capacity would give it an edge, when there is an upturn. We value the stock at FY20E EV/EBITDA of 14x. Our TP of INR4,906, implies 20% upside.
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.
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