India Operations Revenue Grew 29% YoY, Buy This Largecap Aditya Birla Group Stock For 33% Gains

Brokerage firm ICICI Securities in its recent report on UltraTech Cement Limited suggests 'buy' the stocks of the company for a target price of Rs 8,500/share. UltraTech Cement's Q1FY23 consolidated EBITDA at Rs31bn (down only 6.4% YoY), or EBITDA/te at Rs1,236/te (up 11.4% QoQ), was ahead of our / consensus estimates owing to better realisation and astute cost management. If investors buy the shares of the company at the Current Market Price, they can expect potential gains of 33% in 12 months considering the estimated target price by the brokerage.

Stock Outlook & Returns

The Current Market Price (CMP) of UltraTech Cement is Rs 6,411.20/share at the time of writing. Today, it was opened at Rs 6,389.50/share. In the past 1 week, the shares of the company moved up around 5.38%.

In 1 month, its share price moved up nearly 17.28%. It has delivered a negative return of 15.8% in 1 year. The stock has given a positive return over the last 5 years. In the last 3 years, its share has given 42.49% and 57.4% in the last 5 years, respectively.

It is a large cap cement stock of Aditya Birla Group with a market capitalization of Rs 185,759 crore. The 52-week low of the stock is Rs 5,157.05/share & 52 week high is Rs 8,269/share. It hit the 52-week low on 17th June 2022, while the 52-week high on 08th November 2021, respectively.

Revenue grew 29% YoY to Rs145bn

India operations revenue grew 29% YoY to Rs145bn. Volumes grew 17.4% YoY (down 9% QoQ) to ~24mnte (83% utilisation vs 73% YoY), implying a 3-year volume CAGR of 6% vs the estimated industry CAGR of 4.5%. UltraTech Cement expects cement demand to grow at ~8% CAGR over the next five years led by recovery in urban housing and continued momentum in government infra spends and rural housing. Grey cement realisation grew ~7% QoQ to Rs5,516/te aided by double-digit QoQ price increase in North and Central India and by reducing the price gap between non-trade sales and trade sales to just Rs15-20/bag. However, with the onset of monsoon, realisations are currently 3% lower vs the average in Q1FY23, as per the management. RMC revenue grew by a robust 77% YoY to Rs9bn, while white-cement/putty revenue was up 38% YoY at Rs5bn.

EBITDA dipped 8% YoY to Rs 30bn

India operations EBITDA dipped 8% YoY to Rs30bn with EBITDA/te declining 22% YoY, but up 9% QoQ, at Rs1,247/te. Inflation in total cost/te was lower than our / consensus estimates at 5.7% QoQ and 21% YoY at Rs4,828/te. This was primarily a result of effective cost management in fuel procurement (blended fuel cost rose by a meagre US$20/te QoQ to US$184/te). Recurring PAT was down 7% YoY at Rs15.6bn.

Costs pressures may start to recede

While petcoke prices have corrected by 10% MoM in Jul'22-TD and the company has also started sourcing low-cost Russian coal in small quantities, UltraTech Cement expects fuel cost/te to rise QoQ in Q2FY23 owing to high-cost inventory. Accordingly, EBITDA/te may fall both QoQ and YoY and may bottom-out in Q2FY23 before increasing YoY from H2FY23 (assuming fuel prices fall / cement prices rise QoQ).

10% volume CAGR over FY22-FY24E

The brokerage said, "We factor-in 10% volume CAGR for UTCEM over FY22-FY24E and expect EBITDA/te (consolidated) to fall from Rs1,341/te in FY21 and Rs1,222/te in FY22 to Rs1,132/te in FY23E before inching up to Rs1,391/te in FY24E as cost pressures recede."

ICICI Securities Suggests Buy For Target Price Of Rs 8,500/share

UltraTech Cement's Q1FY23 consolidated EBITDA at Rs31bn (down only 6.4% YoY), or EBITDA/te at Rs1,236/te (up 11.4% QoQ), was ahead of our / consensus estimates owing to better realisation and astute cost management. Grey cement realisation grew ~7% QoQ led by reduction in the price gap between non-trade and trade sales. Fuel cost/te rose only 12% QoQ owing to change in fuel mix, better efficiencies and scale benefits. Domestic grey cement volumes grew by a strong 19% YoY (on low base).

The brokerage said, "UltraTech Cement is likely to sustain its industry-leading volume CAGR in the medium term led by an increase of 19.9mnte in capacity in phase-1 of the ongoing expansion plan by FY23, and by another 22.6mnte by FY25-FY26. We believe UltraTech Cement - with its large diversified pan-India market presence, premium brand positioning, timely capacity creation and increased cost efficiencies - is better placed to gain market share / improve margins. We broadly maintain our FY23E-FY24E EBITDA with the target price unchanged at Rs 8,500/share based on 15x FY24E EV/E. Maintain BUY and reiterate UltraTech Cement as our top pick in the sector."

About - UltraTech Cement Limited

UltraTech Cement Limited is the cement flagship company of the Aditya Birla Group. A USD 7.1 billion building solutions powerhouse, UltraTech is the largest manufacturer of grey cement and ready mix concrete (RMC) and one of the largest manufacturers of white cement in India. It is the third largest cement producer in the world, excluding China. UltraTech is the only cement company globally (outside of China) to have 100+ MTPA of cement manufacturing capacity in a single country. The Company's business operations span UAE, Sri Lanka, Bahrain, and India.

UltraTech has a consolidated capacity of 119.95 Million Tonnes Per Annum (MTPA) of grey cement. UltraTech has 22 integrated manufacturing units, 27 grinding units, one Clinkerisation unit and 8 Bulk Packaging Terminals. UltraTech has a network of over one lakh channel partners across the country and has a market reach of more than 80% across India. In the white cement segment, UltraTech goes to market under the brand name of Birla White.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.