JM Financial
Ultratech reported revenue growth at 35% y-o-y primarily on volume growth aided by ramp up of JP assets. However, realisations declined significantly q-o-q (flat y-o-y) as southern/western region witnessed price correction. EBITDA/t declined by 15% y-o-y as cost escalation in absence of realisation improvement impacted margins. Management indicated a double digit growth in industry volumes with Ultratech gaining market share. In addition management guided for higher growth going forward as demand improves from infrastructure and affordable/rural housing segment. Company reduced the net debt by Rs 630 crore vs 2QFY18 (net debt to EBITDA at 2.35x). Demand growth and supply additions are key monitorables to determine pricing power, in our view. We continue to value the company at 12x EVE to arrive at a TP of Rs 4,550 (Dec’18). Maintain BUY. Company reported an EBITDA of Rs 1,270 crore in 3QFY18 growing at 14% y-o-y. Blended EBITDA/t at Rs 712/t,-15% y-o-y; declined significantly primarily on escalations in raw material cost (Rs 51/t impact) and power and fuel cost (Rs 121/t impact). Growth in Petcoke/coal prices and ban on usage of petcoke in Rajasthan led to the power and fuel cost escalation.
Increase in FOR sales/applicability of busy season surcharge led to the marginal increase in freight costs. Slag prices grew by over 65%, which led to the increase in raw material costs. Impact of higher petcoke prices ($104/t) was mitigated by lower power consumption (5% decline), higher WHRS share (8%) and usage of lignite over imported coal (3% in 3Q). Company incurred one-time maintenance expense of Rs 30 crore for JP plants. Ultratech during the quarter announced an expansion of 3.5 MTPA in Pali, Rajasthan at a cost of R1,850 crore ($82/t) expected to come online by June’20; ii) Company reduced the net debt by R630 crore vs 2QFY18 (Net Debt/EBITDA at 2.35x); iii) Company expects the JP units to be cash breakeven by April-June’18. We expect the RoEs to increase from 9.7% in FY18E to 19% by FY20E as volume improvement results in improved operating leverage.
