Analysts Cheer UltraTech Cement’s Cost Cuts, Volume Growth In Q4

Most analysts maintained their bullish investment recommendation for UltraTech Cement Ltd., citing better-than-expected volume growth, improved realizations and cost cuts.

The cement maker posted 16% sequential growth in volumes in the quarter ended March compared with 2-3.5% growth reported by other Holicim group companies. While its operating profit rose 18.9% sequentially, net profit jumped 12% in the reported quarter.

It even reduced net debt by Rs 10,264 crore for the year ended March. Net debt-Ebitda ratio fell to 0.55x as of March 2021 from 1.72x a year earlier.

Of the 44 analysts tracking the company, 40 have a ‘buy’ rating and the remaining four either recommending a ‘hold’ or ‘sell’, suggesting a potential upside of nearly 9.6%, according to Bloomberg data.

Here’s what brokerages have to say about UltraTech’s fourth-quarter results...

Nomura

• Retains ‘buy’ with a target price of TP of Rs 7,650 apiece.
• Ebitda ahead on stronger volume; PAT impacted by lower other income.
• Strong volume growth; blended realization also marginally better
• Lower power/fuel, freight and staff cost offsets higher other opex, raw material costs.
• Higher realization, lower costs drive further margin expansion.
• Key downside risks: extended lockdowns, delay in commissioning, lower cement prices.

Jefferies

• Recommends ‘hold’ rating with a target price of Rs 6,200 apiece.
• The brokerage has an upside scenario of Rs 8,000 and downside at Rs 3,200 apiece.
• Higher-than-expected volume growth and lower costs aided outperformance.
• Net gearing continued to slide down through FY21, a positive.
• Outlook is fairly positive on the medium term.
• Covid-19 clouds the near-term visibility.
• Rs 37-a-share dividend, significantly ahead of the past few years’ level.
• Present dividend per share translates into about 20% of pre-ex consolidated earnings.

CLSA

• Maintains ‘outperform’ rating.
• Ebitda up 12%/17% versus CLSA/consensus estimates.
• Higher profitability drives beat with costs largely in line.
• Debt continues to decline sharply.
• Stock trades in line with its historical median.

Investec Securities

• Maintains ‘overweight’ rating with a target price of Rs 8,000 apiece.
• Broad-based demand recovery in Q4 and potential market share gains a key positive.
• Realizations were better than the brokerage expected and grew quarter-on-quarter.
• Costs/tonne were well controlled, although they could increase in Q1.

Key things, as per CLSA, to watch out for in the company’s post-earnings concall...

• Demand outlook for FY22.
• Impact of Covid-19 related shutdowns in various states.
• impact of cost increases on profitability, especially petcoke and international coal.
• Capex and its progress on expansion projects.