Ultratech cement has risen near 10 percent in 6 sessions prior to its results so part of the good news was factored in if any and they would have to report a solid quarter to build on these gains.

Most of the street had not taken Century Cements' assets in their estimates. However, Ultratech completed the acquisition of Century’s 14.6mt during the quarter taking its India capacity to 109.4mt. Although the acquisition was effective on 1 October 2019, UTCEM results were restated based on the appointed date fixed by the National Company Law Tribunal which is 20 May 2018

MISS 1:

Volumes disappointed

HSBC says they were expecting shipments to rise by 5.5 percent compared to the same period last year, aided by volumes from Ultratech Nathdwara but Ultratech reported volumes of 16mt + 2 percent year on year which missed HSBC expectations. Adjusting for volumes from Ultratech Nathdwara, shipments for Ultratech contracted by 4 percent year on year broadly in line with lower industry demand

MISS 2: Dismal performance by Century Cements

Century cement assets performance was a washout led by a dismal demand environment in key markets due to heavy rains and maintenance shutdown in the past quarter. Century Cements capacity utilisation was at 48 percent vs. 68 percent last year and EBITDA/tonne stood poor at Rs60 vs Rs505 last year and Rs933 in 1QFY20.

Management is optimistic going ahead and targets to achieve EBITDA/tonne of Rs 500-600 within the next 6 months on these assets while it should be aligned with Ultratech standards within the next 12 months. They expect Century assets to see an improvement in EBITDA/t to Rs500 in 2HFY20 driven by higher utilisations and partial shift to Ultratech brand

What are brokerages saying?

Bullish

IDFC maintains an Outperformer rating with Target Price of Rs.4850/sh as they factor in earnings momentum, scale, and efficient operations and so believe valuations are attractive at 11.4x FY21E EV/EBITDA and US$167 on EV/ton

Bearish

HSBC, however, reiterates Reduce and TP at Rs.3520/sh. They say that low return ratios, combined with stretched valuations 13x FY20e EV/EBITDA and 3.8x PB leave little room for positive surprises

Ultratech Management commentary on cement industry

Industry demand continued to be under pressure during the quarter owing to lack of Government funding towards infrastructure projects, excessive rainfalls across country and liquidity crunch. Overall demand de-growth for Q2FY20 stood at 2-2.5 percent YoY. FY20 industry demand growth of 6-7 percent is unlikely considering muted demand and is expected to revive post festive season led by low-cost housing and infrastructure projects. The industry witnessed capacity addition of 5.5 MTPA for H1FY20 while the company expects a total capacity addition of 15-16 MTPA for FY20

First Published:Oct 22, 2019 7:46 PM IST