Ultratech Cement Ltd Buy on dips to Rs 2,765 - Rs 2,880 for Target of Rs 3,341 in 1 quarter ::HDFC Sec

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UTCL recently reported its Q3FY15 results, which were a little below street expectations. Given below are some of the key highlights, which we came across while reviewing the results. Key highlights of Q3FY15 results: UTCL’s Q3FY15 reported higher revenues on account of higher than expected realisations and volumes. The total volumes grew 10% y-o-y in Q3FY15 partly aided by inorganic acquisition.


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 UTCL’s revenue increased 14.8% y-o-y to Rs.5,489.8 cr in Q3FY15, led by 10% y-o-y rise in volume to 11.3 mmt, and 3.6% growth in average blended realisations (to Rs.4,858/tn). The key growth drivers for increase in dispatches were east and west (JPA Gujarat contribution). UTCL’s EBITDA/ton declined by a mere Rs.30 q-o-q to Rs.748 despite sharp decline in realisations due to easing cost pressures and a higher volume base. Cost savings were largely led by decline in freight cost by 4% q-o-q to Rs.1,166/ton and 9% q-o-q decline in other costs (repairs and other manufacturing costs) reflective of the higher volume base. While operational performance was in-line, lower other income, higher finance costs (due to debt-led acquisitions) and higher tax rate curbed profits to Rs.364 cr, marginally lower than last year's Rs.370 cr.  After a weak Q3FY15, cement prices have started improving by end-December, although the extent of prices increases has been divergent across regions. While there is a large price increase in South, modest increase in North and West, East continues to lag other regions. In South, the cement prices started improving from December-end and have increased by Rs.30-40/bag while price increases in North and West have been in the range of Rs.5-10/bag. Cement prices in East have been the weakest among all regions with price increases of Rs.5-10/bag in only a handful of cities.  The management has guided for 8% y-o-y growth with required renewed government focus on housing and infrastructure.  The current cement capacity of the company stands at 60.2 mtpa. Post acquisition of the cement assets of Jaiprakash Associates in Madhya Pradesh its capacity will increase to 65 mtpa. The company is targeting a total capacity of 71 mtpa at the end of FY16 considering all the expansion projects currently underway. The assets acquired included 4.9 mtpa of grinding capacity, 5.2 mtpa of clinker capacity and 180 MW of captive power plant.  The Company’s wholly-owned subsidiary Gotan Lime Stone Khanij Udyog Private Limited (GKUPL) has received an order from the Mines Department, Government of Rajasthan, cancelling the transfer and mining lease of the limestone mines situated in Nagaur District of Rajasthan alleging procedural irregularities. GKUPL has challenged the matter before the Jodhpur High court. The supply from the mines is in addition to its other supply from existing mines and other sources. The Company will procure limestone from the market in the interim and its day to day operations will not be impacted.  It has planned a capex of Rs.7.6 bn towards material evacuation and logistics infrastructure and Rs.41.3bn towards modernization and up-gradation of existing plants including purchase of land. The focus on modernization, up-gradation and logistics infrastructure could help operational efficiencies in future. UTCL had a planned capex of Rs.99 bn (excluding Rs38bn for the latest acquisition) of which it had spent Rs.28.4 bn till March-14. The planned capex for FY15E is Rs.38 bn.  The company has plans to augment capacity by 6 mtpa (3.2 mtpa in the East region to support the clinkerization unit in Raipur and 2.9 mtpa in Rajasthan). Postcommissioning of these capacities, the capacity in India will increase to 66.2 mtpa.  UTCL’s plan to construct a bulk terminal in Maharashtra could help the company control high costs. A bulk terminal specialises in handling and storing noncontainerized bulk cargo. Transport and logistics costs for the cement industry are as high as 20%, the highest among all major industries. The bulk terminals will help the firm to use their captive modes of warehousing and transportation, rather than using third-party logistics providers which will aid them to cut costs.


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