MOSL: ULTRATECH CEMENT (Buy)-Cost benefits play out with margin expansion
UltraTech Cement: Cost benefits play out with margin expansion
(UTCEM IN, Mkt Cap USD18.8b, CMP INR4641, TP INR5440, 17% Upside, Buy)
Deleveraging – the key focus
- UltraTech Cement's (UTCEM) result instills confidence in its planned cost-rationalization and deleveraging roadmap. Operating cost per ton declined 3% YoY (-4% QoQ), driving a 38% YoY increase in EBITDA/t to INR1,008 (-2% QoQ). Strong FCF helped the company to reduce net debt sharply to INR186b (implying 1.9x net debt/EBITDA).
- We maintain our FY20/21 estimates and Buy rating. Moreover, the company's clarification that it has not bid for Emami Cement should remove a key overhang on the stock. UTCEM remains our top pick in the sector.
Volumes subdued, cost benefits play out
- revenue declined 1% YoY to INR103.5b, while EBITDA/PAT grew 32%/75% YoY to INR21.1b/INR7.1b - all broadly in line with our estimates.
- UTCEM incurred one-off expense of INR1.3b toward settlement of pending tax disputes, adjusted for which PAT was at INR8.1b (our estimate: INR7.6b).
- volumes declined 4% YoY, but EBITDA margin/ton increased 38% YoY (-2% QoQ) to INR1,008, with realization up 3.2% YoY (-3.8% QoQ) to INR4,954/t.
- Cost declined as expected to INR3,946/t (-3% YoY/-4.2% QoQ), led by a reduction in petcoke cost, benefits from exemption in busy season surcharge by railways, and cost reduction in acquired assets.
- EBITDA margin expanded 5.1pp YoY/0.4pp QoQ to 20.3%.
- net debt reduced to INR186b in Dec'19 from INR221b in Mar'19.
- Net debt/EBITDA was down to 1.9x in Dec'19 from 2.83x in Mar'19.
- Capex guidance for FY20 lowered from INR20b to INR16b.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
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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