July 25, 2022
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UltraTech Cement Analysis : Cement realisation grew
Stock Call & Research Report by ICICI Direct Research
Sector : Cement
CMP Rs. 6459, Target Rs. 8500 ( 31 % upside)
Target Period : 12 Months
UltraTech Cement’s (UTCEM) Q1FY23 consolidated EBITDA at Rs31bn (down only
6.4% YoY), or EBITDA/te at Rs1,236/te (up 11.4% QoQ), was ahead of our / consensus
estimates owing to better realisation and astute cost management. Grey cement
realisation grew ~7% QoQ led by reduction in the price gap between non-trade and
trade sales. Fuel cost/te rose only 12% QoQ owing to change in fuel mix, better
efficiencies and scale benefits. Domestic grey cement volumes grew by a strong 19%
YoY (on low base). UTCEM is likely to sustain its industry-leading volume CAGR in the
medium term led by an increase of 19.9mnte in capacity in phase-1 of the ongoing
expansion plan by FY23, and by another 22.6mnte by FY25-FY26. We believe UTCEM –
with its large diversified pan-India market presence, premium brand positioning, timely
capacity creation and increased cost efficiencies – is better placed to gain market
share / improve margins. We broadly maintain our FY23E-FY24E EBITDA with the
target price unchanged at Rs8,500/sh based on 15x FY24E EV/E. Maintain BUY and
reiterate UTCEM as our top pick in the sector. Key risks: lower demand / prices, and
higher costs.
India operations revenue grew 29% YoY to Rs145bn. Volumes grew 17.4% YoY (down
9% QoQ) to ~24mnte (83% utilisation vs 73% YoY), implying a 3-year volume CAGR of 6%
vs the estimated industry CAGR of 4.5%. UTCEM expects cement demand to grow at
~8% CAGR over the next five years led by recovery in urban housing and continued
momentum in government infra spends and rural housing. Grey cement realisation grew
~7% QoQ to Rs5,516/te aided by double-digit QoQ price increase in North and Central
India and by reducing the price gap between non-trade sales and trade sales to just
Rs15-20/bag. However, with the onset of monsoon, realisations are currently 3% lower vs
the average in Q1FY23, as per the management. RMC revenue grew by a robust 77%
YoY to Rs9bn, while white-cement/putty revenue was up 38% YoY at Rs5bn.
India operations EBITDA dipped 8% YoY to Rs30bn with EBITDA/te declining 22%
YoY, but up 9% QoQ, at Rs1,247/te. Inflation in total cost/te was lower than our /
consensus estimates at 5.7% QoQ and 21% YoY at Rs4,828/te. This was primarily a
result of effective cost management in fuel procurement (blended fuel cost rose by a
meagre US$20/te QoQ to US$184/te). Recurring PAT was down 7% YoY at Rs15.6bn.
Costs pressures may start to recede: While petcoke prices have corrected by 10%
MoM in Jul’22-TD and the company has also started sourcing low-cost Russian coal in
small quantities, UTCEM expects fuel cost/te to rise QoQ in Q2FY23 owing to high-cost
inventory. Accordingly, EBITDA/te may fall both QoQ and YoY and may bottom-out in
Q2FY23 before increasing YoY from H2FY23 (assuming fuel prices fall / cement prices
rise QoQ).
We factor-in 10% volume CAGR for UTCEM over FY22-FY24E and expect EBITDA/te
(consolidated) to fall from Rs1,341/te in FY21 and Rs1,222/te in FY22 to Rs1,132/te in
FY23E before inching up to Rs1,391/te in FY24E as cost pressures recede.
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