Ultratech Cement rating – Buy: A strong performance by firm in Q4FY21

UltraTech is on observe so as to add 19MTPA capability over the subsequent two years and has a powerful stability sheet– enabling it to consolidate share additional.

UTCEM cement volumes in This fall at almost 28MT, up c30% y-o-y, surpassed its earlier peak in Q4FY19. For the total yr FY21, quantity development of 5% y-o-y was considerably forward of the business (down low single digits y-o-y), as the corporate leveraged its sturdy pan-India presence, provide chain and model fairness. Demand was broad-based throughout areas with capability utilisation for Q4FY21 crossing +90% throughout every of them apart from the southern markets. The east continues to steer the pack, working at +100% of rated capability. The corporate additionally noticed sturdy offtake for the RMC enterprise, up 19%, now contributing c5% of revenues.

Admittedly, a part of the market share consolidation within the business was owing to the upper affect of COVID-19 led disruptions for smaller and regional cement gamers. Nonetheless, in our view, UTCEM additionally has been profitable in leveraging its sturdy model, ramping up operations of lately acquired belongings, collaborating in massive infra initiatives and strong capability additions lately. UltraTech is on observe so as to add 19MTPA capability over the subsequent two years and has a powerful stability sheet– enabling it to consolidate share additional.

Look past the close to time period: The brand new COVID-19 wave in India stays a key threat within the close to time period. Our interactions with sellers counsel moderation in gross sales. Nonetheless, cement demand, in our view, is usually sticky and will see a fast restoration because the macro atmosphere and affect of the pandemic normalise over the yr. We proceed to think about 10% gray quantity CAGR over FY21-24e for UTCEM.

Managing price levers prudently: Ebitda margin at 25.6% in This fall was nicely forward of Road expectation of c23.5%. The corporate additional guided that variable prices for H1FY22 are more likely to stay aggressive (vs friends). The gray cement realisations have been up 3% y-o-y in FY21 and fared higher than its friends in This fall as nicely at 2% q-o-q. Publish the sturdy This fall efficiency we revise up our Ebitda estimates for FY22/23 by 1%/2% regardless of additional escalation in enter prices – as we anticipate pricing tendencies to stay supportive.

We revise our TP to Rs 7,900 from Rs 7,600: UTCEM in our view will stay the important thing beneficiary of the demand upcycle within the medium time period. We see threat reward beneficial on again of enhancing ROE profile and development outlook.