UltraTech Cement Score: Purchase- Agency to realize most from demand revival

Factoring in greater volumes, we elevate our FY22-FY23e Ebitda by 2-3%, which takes it 12-13% forward of consensus.

We anticipate UltraTech Cement (UTCEM) to be the important thing beneficiary of probably sturdy demand revival over the subsequent few years given its low clinker utilisation, diversified market combine and important non-trade presence vs friends. Introduced enlargement of ~20mnte would drive sturdy quantity development and with sturdy OCF era of >Rs 110 bn p.a., the corporate might additional speed up its development plans. Prices/te may additional cut back by Rs 100/te by FY24e (our estimate) led by numerous value efficiencies and RoCE is prone to increase by ~400bps over FY21-23e. Factoring in greater volumes, we elevate our FY22-FY23e Ebitda by 2-3%, which takes it 12-13% forward of consensus.

We imagine UTCEM might rerate (valuation low cost vs SRCM might slender to 10-12% vs historic common of 20-25%) because it continues to realize market share with improved profitability/ RoCEs. Therefore, we elevate our goal a number of to 15x FY23E EV/E (earlier: 13x) and lift our goal value to Rs 8,000/sh (earlier: Rs 6,700). Keep Purchase. Key dangers: decrease demand/pricing.

Firm might publish sturdy 35-40% y-o-y Ebitda development in Q4FY21e (vs 25-30% y-o-y development for trade) led by >25% y-o-y quantity development (vs ~20% y-o-y trade development). Diversified market combine vis-à-vis friends permits UTCEM to trade-off value in a single market (say achieve market share in North/Central) and compensate it by higher costs in one other market (say South/West) and but enhance total profitability.

Market share features prone to proceed for UTCEM given giant unutilised capacities of acquired entities, particularly in high-growth North and Central areas the place a lot of its friends could also be dealing with capability constraints. UTCEM additionally has giant non-trade publicity (~35%) and stands to profit from probably pick-up in infrastructure spend and higher city housing demand. Non-trade volumes grew by a powerful 40% q-o-q and 25% y-o-y, and RMC revenues too grew 43% q-o-q and 24% y-o-y, in Q3FY21. UTCEM is prone to function at excessive efficient utilisation of ~83% over FY22-23e and publish 9-10% quantity CAGR over FY20-FY23e vs our estimate of 6-7% trade quantity CAGR.

Quantity development to stay sturdy past FY23E too: UTCEM’s plan so as to add ~20mnte capacities (~18% of home capacities) over the subsequent 2-3 years within the excessive development/utilisation markets of East, Central and North would guarantee sooner ramp-up and better quantity development. On condition that >70% of those expansions are brownfield with common capex of $60/te, these belongings are anticipated to take pleasure in wholesome RoCE of >15% (vs 11.5% in FY20).

UTCEM to grow to be debt-free by end-FY22e and is prone to generate OCF of >Rs 110 bn p.a. This may increasingly enable the corporate to speed up its development by way of each natural/inorganic routes. Traditionally, acquisitions have been integral to UTCEM’s development story with the corporate having fun with sturdy observe report on turning round acquisitions. We anticipate UTCEM to publish income, Ebitda and PAT CAGRs of 12%, 17% and 30% respectively over FY20-FY23e.

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