On Tuesday, Citi adjusted its price target for UltraTech Cement Ltd (UTCEM:IN), a leading cement manufacturer, to INR 12,500 from the previous INR 13,000, while maintaining a Buy rating on the stock.
The revision comes after the company's second-quarter standalone EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) dropped by approximately 18% year-over-year, coming in at INR 19.3 billion, which is 3% below Citi's estimate.
The second-quarter performance was marked by a mix of higher volumes, which saw a 3% increase, and lower costs, down by 4%. These factors, along with higher Ready-Mix Concrete (RMC) sales, helped to offset the lower year-over-year realizations, which fell by 8%. The India EBITDA per tonne stood at INR 750, compared to INR 980 in the first quarter and INR 930 in the same period last year.
According to the analyst's commentary, industry demand was either negative or flat during the second quarter. However, UltraTech Cement expects to see double-digit growth in the second half of the year and aims to outperform industry growth during this period. Spot realizations were reported to be around 2% higher compared to the second quarter.
The report also noted that second-quarter costs were influenced by higher other expenses, which included lower volumes, maintenance, and employee increments. Furthermore, the company is awaiting National Company Law Tribunal (NCLT) approval for the acquisition of Kesoram, with hearings scheduled in October and November.
The acquisition of a stake in India Cements by UltraTech is pending approval from the Competition Commission of India (CCI), after which an open offer will be launched.
Citi's reiteration of the Buy rating is underpinned by its forecast of approximately a 10% compound annual growth rate (CAGR) in volume through FY24-27.
Additionally, the firm anticipates EBITDA per tonne upsides based on cost efficiencies, despite pricing challenges, and continued visibility for growth. The valuation of UltraTech Cement is noted at an Enterprise Value (EV) per tonne of $195, compared to a historical peak of about $250.
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