UltraTech Cement Ltd
(BSE Code: 532538) (CMP: Rs.3384.45) (FV: Rs.10) (TGT: Rs.3850+)
Incorporated in 2000, Mumbai based UltraTech Cement Ltd (UCL) is a subsidiary of Grasim Industries that manufactures and sells cement and cement related products. It offers Ordinary Portland Cement (OPC), Portland Blast-Furnace Slag Cement, Portland Pozzolana Cement (PPC), White Cement and White Cement based products; ready mix concrete (RMC); and building products consisting AAC blocks, jointing mortars, etc. It also provides Super Stucco, a self-curing no-watercuring plaster; Power Grout, a self-curing industrial grout for anchoring/grouting applications; Seal and Dry Water Proofing Systems; C'retePro, a liquid system for mortar and concrete modifier; and repair mortars and concrete under the names ‘Basekrete’ and ‘Microkrete’. In addition, it offers construction products and value-added services like technical advice during construction, vaastu consultancy, product training in various categories, etc. It exports to UAE, Bahrain, Bangladesh and Sri Lanka.
UCL reported a below par operating performance in Q2FY19 with 7% lower EBITDA at Rs.11700 million v/s our estimate of Rs.12200 million. Reported EBITDA/tonne was Rs.744 v/s Rs.958 and Rs.825 in Q2FY18 and Q1FY19 respectively. However, a higher-than-expected average realisation is a positive surprise as NSR (cement) improved by ~2% QoQ to Rs.4423/tonne. Sales volume stood at 15.7 million tonnes (+19.5% YoY and -10% QoQ). While operating
cost/tonne rose 7% YoY and 6% QoQ to Rs.4181, input cost/tonne too grew 14% YoY and 5% QoQ to Rs.1946, mainly led by higher power consumption due to maintenance shutdown, INR depreciation and higher custom duty on pet-coke along with higher pet-coke prices. Maintenance cost and maintenance-led shutdown resulted in incremental cost of Rs.100/tonne QoQ, which we expect to contribute to absolute EBITDA in H2FY19E. However, we cut our EBITDA estimate by 9%/8% for FY19E/FY20E mainly to factor in higher cost. During the quarter, its revenues grew ~21% YoY to Rs.77300 million, mainly led by higher sales volume. Notably, sustained demand environment, especially from the non-trade segment, led to strong sales volume. Non-trade sales volume grew 40% YoY while trade sales volume grew 11% YoY. White cement (including wall putty) sales volume stood at 0.32 million tonnes with revenue of Rs.4500 million. RMC revenue came in at Rs.4800 million.
A persistent rise in cost pressure, led by higher fuel and input prices continued to hamper UCL’s operating performance. Operating cost/tonne rose 6% QoQ, mainly due to 20% and 5.4% sequential rise in other expenditures/tonne and input cost/tonne respectively. Notably, Power & Fuel cost/tonne rose sharply by 12.5% QoQ (+18% YoY). However, logistics cost/tonne declined ~3% QoQ, led by reduction in lead distance and absence of railway surcharge.
Technical Outlook: The stock looks good on the daily chart for medium-term investment. It currently trades near its 200 DMA level on the monthly chart and has taken support of the uptrend line on the weekly chart. Start accumulating at this level of Rs.3384.45 and on dips to Rs.3184 for medium-to-long term investment and a possible price target of Rs.3850+ in the next 12 months.