Improving profitability, low valuations offer comfort in UltraTech

Net debt to Ebitda is also reducing, with this ratio at 1.7 times as on March 21, 2020, down from 2.83 x a year ago
The disruption caused by the lockdown took a toll on UltraTech’s March quarter (Q4) domestic sales, which declined 16.1 per cent year-on-year (YoY). However, better realisations and lower costs lifted overall performance.

Though UltraTech is a pan-India cement producer, having raised considerable capacities in the northern and central regions, as well as Gujarat, has helped the firm tide over weakness in cement prices, in other regions.

Per-tonne realisation improved 3 per cent YoY and 1.2 per cent sequentially. Consequently, revenues at Rs 10,200 crore from domestic operations fell by a lower margin of 13 per cent (against volumes) YoY. 

Strong cost control, lower diesel, petcoke and coal prices also played a part. Per-tonne logistics costs fell 3 per cent YoY to Rs 1,149, while energy costs declined 13 per cent YoY to Rs 914.
Stand-alone operating Ebitda at Rs 2,486 crore was better than consensus estimates of Rs 2,226 crore. According to analysts, per-tonne Ebitda at Rs 1,088 was higher than last year’s Rs 986 and the December quarter’s Rs 960.
UltraTech’s normalised net profit for India operations (excluding tax reversals of Rs 2,112 crore) came in at Rs 1,117 crore, beating estimates of Rs 909 crore. 


Notably, while rival ACC also benefitted from lower costs, UltraTech has maintained its lead in per-tonne profitability. ACC had reported per-tonne Ebitda at Rs 741 compared to Rs 579 a year ago and Rs 539 in the December quarter. 

Benefits of lower pet-coke prices are expected to continue. UltraTech is also gaining from the improving performance of the acquired cement assets of Century, which now reflects in its financials.

While capacity utilisation of Century’s assets rose to 80 per cent in Q4, the one-time integration cost of Rs 40 crore, accounted for in Q4, will not be there in subsequent quarters. Per-tonne Ebitda at Rs 575 is seen improving to Rs 700-800. 
With the integration of the 6.25 mtpa (million tonnes per annum) capacity at Nathdwara complete (acquired from Binani), Ebitda came in at above Rs 1,250 per tonne during FY20. UltraTech has commissioned another 2-mtpa cement plant at Bara, taking its total consolidated capacity to 114.8 mtpa. 

Net debt-to-Ebitda is also reducing — at 1.7x as on March 31 — down from 2.83x a year ago. Despite near-term uncertainty on cement demand, analysts such as Sanjeev Kumar Singh at Emkay Global maintain a positive view on the stock. 

Valuations, too, at 12x its FY22 estimated enterprise value/Ebitda, is lower than historical levels of 14-15x, said Kunal Shah of YES Securities, who remains cautiously positive (buy) considering the demand challenges.

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