Buy Ultratech Cement; target of Rs 5400: Prabhudas Lilladher

Prabhudas Lilladher's research report on Ultratech Cement

UTCEM reported strong Q2FY21 earnings with 25%/16% beat on consensus/our EBITDA estimates. EBITDA/t expanded 30% YoY at Rs1,330 (PLe:Rs1,155), on the back of 7% (v/s PLe: 4.3%) YoY reduction in cost and flat (v/s PLe:1% fall) YoY realisations. We upgrade our EBITDA estimates by 5%/8% for FY21e/FY22e to factor in lower costs. UTCEM has swiftly transitioned in to strong state of operations with the successful integration of acquired assets of Century cement, JP associate’s cement plants and Binani cement. Backed by sound B/S (Net debt/EBITDA at 1.2x) and steady cash flows, UTCEM embarks on next round of growth with 9mtpa of new capacities scheduled for commissioning in next couple of years along with sizeable investment in high payback and environment friendly renewable power (WHR) to increase its share to 30% from current 12% of overall power requirement. Led by its dominant size (23% market share) and highly efficient operations, we believe that UTCEM stands out as the best candidate to play recovery in the sector.

Outlook

We reiterate BUY with revised TP of Rs5,400 (earlier Rs4,950), EV/EBITDA of 15x FY22e.

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