The Q1FY22 efficiency of UltraTech Cement (UTCL) is picture-perfect—akin to Q4FY21. Regardless of the chances, it exceeded expectations throughout volumes, realisation and value, driving Ebitda/t to an all-time excessive. Ebitda topped our estimate by 19%. Factoring in agency underlying cement costs, we’re elevating FY22e and FY23e Ebitda by ~7% every.
UTCL’s strong efficiency – and likewise friends’ – reinforces our religion within the sector’s means to guard earnings in powerful instances. Moreover, we view bettering demand outlook, agency cement costs and potential peaking of gas price as valuation re-rating arguments. Accordingly, we’re revising up UTCL’s EV/Ebitda to 17x (from 15x) and upgrading it to Purchase (from ‘HOLD’) with a revised TP of Rs 8,627 (Rs 6,736 earlier).
Outperformance throughout parameters
The second Covid wave dragged UTCL’s volumes by 22% q-o-q to 21.53mn tonnes (up 47% y-o-y on a low base), nevertheless it nonetheless got here in 2.6% above our estimate. Blended realisation rose 6% q-o-q (>7% for gray section), beating our estimate by 1.3%. Whereas variable price/t stood flat q-o-q (2.3% beneath expectation), general price/t was 3.5% beneath estimates (rising 2.6% q-o-q). All in all, blended Ebitda/t rose to an all-time excessive of Rs 1,536 whereas margins climbed to a decadal excessive of 28%.
Factoring in agency underlying cement costs, we’re elevating FY22e and FY23e Ebitda by ~7% every. Our revised Ebitda/t is Rs 1,417 for FY22e and Rs 1,402 for FY23e vis-à-vis Rs 1,338 in FY21.
Strengthening sector conviction
Strong Q1FY22 efficiency displayed by UTCL and trade friends (together with pan-India main ACC) convinces us of the sector’s means to guard earnings in powerful instances—be it by way of agency cement costs or tight price management. With a large drop in Covid-19 circumstances, demand outlook has turned shiny, but once more. Whereas present cement costs keep broadly agency, the latest decline in international crude oil costs hints at a possible peak, in the intervening time a minimum of. Factoring within the earnings improve and rising sector conviction, we’re elevating EV/Ebitda to 17x for UTCL.
Outlook and valuation: Bettering prospects; improve to ‘BUY’
UTCL’s agility displayed throughout volumes, realisation and value prior to now few quarters is heartening. Bettering ROE, strengthening Stability Sheet and scope of effectivity enhancement complement the bettering sector outlook. We due to this fact improve to ‘BUY/SO’ with a TP of Rs 8,627.
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