MOSL: ULTRATECH CEMENT (Buy)-Margin miss led by lower realizations-Volumes exceed estimates led by JPA ramp-up
Ultratech Cement: Margin miss led by lower realizations; Volumes exceed estimates led by JPA ramp-up
(UTCEM IN, Mkt Cap USD18.7b, CMP INR4409, TP INR5131, 16% Upside, Buy)
- Volumes rise as JPA operates at 60% utilization: 3QFY18 volume rose 35% YoY (+21% QoQ) to 15.85mt (est. of 14.02mt), as JPA’s average utilization for the quarter was 51%. However, realization fell 4% QoQ to INR4,789 (est. of INR5,132) due to weak pricing in south and west. Net sales stood at INR75.8b (+15% QoQ), exceeding our estimate of INR73.7b.
- Margins hit by lower realization: P&F cost/t rose 15% YoY due to higher petcoke prices. However, the impact was mitigated by better efficiency due to higher proportion of WHRS. Other expenses increased 19% QoQ due to higher shutdown and maintenance expenses for the acquired units. EBITDA declined 6% QoQ to INR12.7b (est. of INR14.2b), translating into EBITDA/ton of INR801 (-INR228/t QoQ; our estimate: INR985), and a margin of 16.7% (-3pp YoY; -3.8pp QoQ) due to lower QoQ realization. Reported PAT stood at INR4.2b (-2% QoQ), while adj. PAT came in at INR3.5b (-19% QoQ; est. INR4.6b) as INR10.4b of provision toward DMF for earlier years was reversed in other income.
- Management commentary: 1) All-India cement prices corrected by 4-5% QoQ. 2) Petcoke usage has been banned in thermal power plants. 3) Proportion of trade has declined from 68% to 65% due to higher demand from infrastructure. 4) UTCEM plans to incur capex of INR20-25b.
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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Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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