ICICI Direct is bullish on UltraTech Cement has recommended buy rating on the stock with a target price of Rs 4150 in its research report dated January 28, 2019.
ICICI Direct's research report on UltraTech Cement
UltraTech Cement reported a mixed set of numbers. Revenues were above our estimates led by better realisations with volumes being in line and meeting our estimates. EBITDA and PAT were below our estimates due to higher than expected input costs Revenues increased 18% YoY to Rs 8,812 crore during Q3FY19 (vs. I-direct estimate of Rs 8,590 crore) mainly led by increase in volumes to 17.1 MT (in line with I-direct estimate of 17.1 MT). Revenues beat I-direct estimates on account of better net realisations, up 4.2% to Rs 5,154/t (above I-direct estimate of Rs 5,029/t) EBITDA margin declined 121 bps YoY to 15.8% (vs. I-direct estimate:17.8%) mainly due to higher power & fuel cost (up 34.4% YoY due to usage of high cost pet coke inventory and weak rupee). EBITDA/t declined 3.3% YoY to Rs 813/t (vs. I-direct estimate of Rs 893/t) led by higher P&F costs/tonne at Rs 1,186/t in Q3FY19 vs. Rs 1,000/t in Q3FY18 Freight costs were higher by Rs 40/t on account of higher diesel costs and busy season surcharge by railways. P&F and freight costs should soften, going forward, with sequential correction in prices of petcoke and diesel price. We expect total cost to come down by ~Rs 124/tonne PAT during the quarter witnessed 6.5% YoY growth to Rs 449.1 crore, below I-direct estimate of Rs 579 crore mainly led by contraction in EBITDA margins.
Outlook
After acquiring Jaypee (21.1MT), Binani (6.25MT) and Century assets (13.4 MT), the company has achieved greater scale to become largest player in the Industry with total domestic capacity of over 107MT. However, this, in turn, also has put pressure on their margins during the current year due to low asset utilisations of acquired assets aided by weak pricing environment. Going forward, we believe as the newly acquired plant stabilises with industry demand (~27 MT p.a.) outpacing with supply growth (~15 MT p.a.). We expect the company to be a major beneficiary of operating leverage benefit. Consequently, we maintain our BUY recommendation on the stock with a revised target price of Rs 4,150/share (i.e. at 15.0x FY20E EV/EBITDA).
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