UltraTech Cement reported a 61.5 per cent year-on-year rise in net profit to Rs 1,778 crore in Q4. Its topline jumped 34.6 per cent on-year to Rs 13,784 crore in the final quarter of the financial year 2020-21, reflecting strong demand and pricing conditions for the industry.
Nomura said the company’s performance beat all consensus estimates. “With about 1 per cent higher blended realization and 1 per cent lower costs versus our estimates, blended per unit Ebitda at Rs 1,321 was 6 per cent above our estimate,” said Aditya Bansal of Nomura.
He values the stock at 16 times FY23 EV/Ebitda and maintains a ‘buy’ rating with a target price of Rs 7,650, implying an 18 per cent upside. “UltraTech Cement is our preferred pick in the cement space,” he said.
UltraTech Cement has grown its market share further due to high clinker availability, which helped it meet strong demand for ordinary portland cement in the fourth quarter of FY21.
Its India volumes grew 30 per cent and 5 per cent YoY in Q4 and FY21, respectively. That was much higher than the growth rates of 24 per cent, 24 per cent and 22 per cent reported by Dalmia Bharat, Ambuja Cements and ACC for the March quarter, respectively.
“Market share gains should continue, aided by the ongoing 20 mtpa expansion program, which should drive 11 per cent volume CAGR over FY21-24,” said Amit Murarka, an analyst at Motilal Oswal.
The company’s performance has been robust throughout the year despite Covid related disruptions. The second wave, which is having a devastating effect on the country, may have some impact but the company is expected to come out of it triumphantly.
The company management said rising Covid-19 cases are a near-term risk to cement demand. However, it remains optimistic on the strong upcycle for cement demand over the next 3-5 years. It expects demand growth to be broad-based across segments. The management expects energy costs to stabilise by the third quarter of FY22.
“While we expect industry volumes to decline by 25-30% in the near term due to Covid-related lockdowns, the same should be partly compensated by improved margins as prices have been strong. Our earnings estimates for UltraTech Cement for FY22-23 are therefore broadly unchanged. We estimate 19% EPS CAGR,” said Murarka, who has a target price of Rs 8,050, indicating a potential upside of 24 per cent.
The company has a strong pan-India distribution network and the preferred supplier status for key infrastructure projects makes it well suited to tap into expected growth in both retail and institutional cement demand in India.
While it is ramping up its under-utilized acquired capacities, it also has a strong pipeline of expansion projects that offers strong growth visibility, said analysts.
Debt in the company’s book also continues to decline. Net debt fell by Rs 2,700 crore in the March quarter to Rs 6,700 crore. Capex for the year was at Rs 1,900 crore. Even as operational expenditure was more than expected, lower costs led to the margin beat.
ICICI Securities pegs the stock at Rs 8,000 in 12 months and CLSA believes it may hit Rs 7,500 during this period. The stock dropped 1.5 per cent in Monday’s trade to Rs 6,388.
