MOSL: ULTRATECH CEMENT (Buy)-Volumes disappointment offset by better pricing
​Ultratech Cement: Volumes disappointment offset by better pricing
(UTCEM IN, Mkt Cap USD17.9b, CMP INR4209, TP INR4936, 17% Upside, Buy)
- Domestic volumes decline 1% YoY: 1QFY18 revenue increased 6% YoY to INR66.26b, lower than our estimate of INR67.55b due to volumes disappointment. Volumes (including white cement and putty) were flat at 13.2mt (est. of 13.7mt) as domestic grey cement volumes declined 1% YoY. This was partially offset by higher exports (+30% YoY).
- EBITDA beat led by margin expansion: Blended realization increased 7% QoQ to INR5,025/t, led by healthy pricing in its focus markets. Grey cement realization rose 9% YoY to INR4,481/ton due to improved pricing across most markets. Power & fuel cost/t increased 32% YoY due to the impact of higher petcoke prices. Freight cost rose 3% YoY due to ~9% YoY increase in diesel prices, partially offset by efficiency improvements. EBITDA thus increased 10% YoY to INR15.6b (higher than our estimate of INR14.7b due to better pricing), translating into EBITDA/ton of INR1183 (+INR274/t QoQ; +INR105/t YoY) and margin of 23.5% (+0.7pp YoY; +4pp QoQ).
- Management commentary: 1) JPA assets are operating at utilization of less than 15%, which is likely to go up to 60% by 1QFY19 and 70% by end-FY19. 2) Present EBITDA/t of JPA assets is ~INR400, even at 15% utilization, led by incentives. 3) EBITDA/ton is likely to be impacted in 2QFY18 due to expenditure on integration of new assets and rebranding activities.
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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