Q1 Results: Analysts Bullish On UltraTech Cement Despite Muted Volume Growth

Most analysts remained bullish on UltraTech Cement Ltd. after the cement maker’s operational performance beat estimates in the quarter ended June, aided by cost cuts and higher prices.

The company’s operating profit, or earnings before interest, tax, depreciation, and amortisation, rose 57.1 percent year-on-year to Rs 2,549.9 crore. Its operating margin expanded 700 basis points to 26 percent. UltraTech’s profit also jumped two-fold during the period.

But the cement maker’s volumes rose at a slower pace in the three months ended June. That turned a few analysts cautious. They are also concerned about the company’s current valuation and the growth outlook for the industry as a whole in the ongoing financial year.

Shares of UltraTech Cement rose as much as 3 percent compared with a 0.95 percent gain in the benchmark Nifty 50 Index.

Here’s what the brokerages have to say about UltraTech’s first-quarter performance:

CLSA

• Maintains ‘Buy’ and hikes target price to Rs 5,400 from Rs 5,270 apiece.
• Ebitda per tonne rallied close to an all-time high of more than Rs 1,400/tonne.
• Pali expansion put on hold shows the urgency to de-risk balance sheet.
• Volume growth was below forecast

JPMorgan

• Maintains ‘Overweight’ with a target price of Rs 5,250 apiece.
• First quarter delivers record Ebitda/tonne and debt reduction.
• Recent stock correction offers a buying opportunity.
• Volume growth in line; FY20 industry growth guidance of 6-7 percent.
• De-leveraging remains the key focus.

UBS

• Maintains ‘Neutral’ with a target price of Rs 4,700 apiece.
• First quarter beats largely on back of lower raw material costs.
• Continues to grow ahead of the industry but lacks near-term trigger.

Bank Of America Merrill Lynch

• Reiterates ‘Underperform’ and cuts target price to Rs 4,166 from Rs 4,184 apiece.
• Reduces FY20/21 Ebitda by 1 percent.
• First quarter price hike partially offset by muted demand.
• Cement demand to disappoint in FY20 at a subdued 4 percent growth.
• Muted demand in high-growth states of Andhra Pradesh, Odisha, West Bengal and Arunachal Pradesh
• Valuation expensive at 13.5 times of two-year forward EV/Ebitda

Citi

• Maintains ‘Buy’ and raises target price to Rs 5,250 from Rs 5,300 apiece.
• Domestic realisations rose 14 percent; northern/southern region witnessed the sharpest increase.
• Pricing pullback may be temporary; volumes to improve on resolving state-specific issues.
• Company has a strong growth pipeline and remains focused on deleveraging.

Nomura

• Maintains ‘Buy’ rating and retains target price at Rs 5,500 apiece.
• Cement volumes much weaker than expectations.
• Excluding UltraTech Nathdwara Cement, standalone volume declined 3 percent year-on-year.
• Blended realisation up 14 percent year-on-year; better than estimates.
• Costs to be on a declining trend, particularly driven by lower petcoke prices.
• UltraTech is a preferred name and only ‘Buy’