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Broker's call: UltraTech Cement (Buy)
CMP: 3,786.55
Target: 4,350
UltraTech Cement is engaged in the business of cement and cement-related products. The company manufactures a range of products that cater to construction needs from foundation to finish, including Ordinary Portland Cement, Portland Blast Furnace Slag Cement, Portland Pozzolana Cement.
We hosted Atul Daga, ED & CFO at UltraTech Cement, at our recent 17th Asia Annual Investor Conference 2019. Key takeaways include: a) Demand is expected to grow at 7-8 percent CAGR over the next few years and with improving utilization, prices are likely to improve; b) UltraTech Nathdwara (erstwhile Binani Cement) utilisation has been increased to 60 per cent with EBITDA/te of >₹600/te in January 2019; targeting low teens RoCE in the next 3-4 years; c) cement assets of Century Textiles operating at average capacity utilization of 75 percent with EBITDA/te of ₹500/te during 9MFY19; potential to improve profitability by ₹300-400/te through re-branding and cost rationalizations; d) higher focus on improving overall cost efficiencies. Consolidated net debt is likely to peak-out at ₹22,000 crore in FY20E and reduce to ₹18,100 crore by FY21E. We maintain our FY19E-FY21E estimates with target price unchanged at ₹4,350/share based on 14x December 2020 EV/E. Maintain ‘buy’. UltraTech Cement remains one of our preferred picks.
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