UltraTech Cement share price: Sharekhan maintains Buy rating with a revised price target of Rs 6700

Sharekhan have increased their estimates for FY2021-FY2023E, factoring higher volume offtake considering strong pick up in cement demand to sustain going ahead. Sharekhan continues to maintain their Buy rating on UltraTech Cement stock with a revised price target of Rs 6700. UltraTech Cement continued its outperformance during Q3 FY21. Growth was led by higher than expected volume growth and operational profitability.

UltraTech Cement standalone revenue rose by 18.6% yoy to Rs 11831 cr, led by 14.1% yoy rise in volume, while blended realisations grew by 3.9% yoy (down 0.6% qoq). The company saw pick up in infrastructure demand and urban housing demand from tier 2 and 3 cities, while rural housing demand continued to support growth. UltraTech Cement reported strong EBITDA/tonne of Rs 1290, which was led by higher realisations, low raw-material costs (down 13.1% yoy on per tonne basis), and other expenses (down 10.1% yoy).

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The marginal impact of rising pet coke prices (Power and fuel cost up 3.8% yoy on per tonne basis) and diesel prices (freight costs up 5.5% yoy was felt during the quarter. The fuel impact of higher pet coke prices is expected in Q1 FY22. UltraTech Cement Operating profit jumped 53.4% yoy to Rs 2944.5 cr (higher than estimates). Strong operational performance along with lower interest expense (net debt reduction during 9M FY21) led to higher than expected adjusted net profit of Rs 1550 cr.

During Q3 FY21, UltraTech Cement reduced net debt by Rs 2696 cr (Rs 7424 cr reduction in 9M FY21) and increased treasury corpus to Rs 13000 cr (10000 cr in Q2 FY21). The company’s board also approved raising of funds (as per management, there won’t be fund raising through equity) not exceeding Rs 3000 cr for interest arbitrage opportunities to refinance debt.

UltraTech Cement is undergoing a capacity expansion plan of Rs 6527 cr for adding 19.5 million tonnes per annum (mtpa) capacity by FY2023 in a staggered manner, which is also expected to yield 15%+ RoE. UltraTech is also taking ESG ratings religiously and has chalked out plans for reduction in CO2 emissions, increasing green power share, disposal of industrial waste, and CSR expenditure.

UltraTech Cement-Key positives:

Continue to outperform on volume and EBITDA/tonne.
Consolidated net debt reduction of Rs 2676 cr in Q3 FY21, release of Rs 780 cr in working capital. Š
Treasury corpus rises to Rs 13000 cr in Q3 from Rs 10,000 cr in Q2 FY21.

UltraTech Cement-Key negatives:

Pet coke price at $110/tonne, expected to stabilise by Q2 FY22

UltraTech Cement-Key risk:

Weak macro environment leading to lower cement demand and pressure on cement prices negatively affects profitability.