Results Review for UltraTech Cement, SRF, Bandhan Bank, Mphasis

Published 24-07-2022, 11:42 am

UltraTech Cement (NS:ULTC): We maintain BUY on UltraTech (UTCEM) with an unchanged target price of INR 7,295 (16x Mar’24E consolidated EBITDA). We continue to like the company for its strong growth and margin outlook and balance sheet management. UTCEM’s Q1FY23 consolidated EBITDA came in ~10/15% ahead of ours/consensus numbers. Due to elevated fuel prices, UTCEM’s consolidated EBITDA/APAT in Q1FY23 fell 6/7% YoY (despite 28% revenue growth). While unitary EBITDA fell 20% YoY, it rebounded 11% QoQ to a healthy INR 1,236/MT. UTCEM cautioned that its fuel cost has not yet peaked out. It will be adding ~40mn MT capacity during FY23-25E, expanding its grey capacity to 154mn MT by the end of FY25E. It also expects to double its green power share to 36% in FY25, vs 18% currently.

SRF (NS:SRFL): We retain our ADD rating on SRF, with a target price of INR 2,550, on the back of (1) continued healthy performance from speciality chemicals business; (2) strong balance sheet; and (3) deployment of Capex for high-growth speciality chemicals business over the next 3-4 years to tap opportunities emerging from agrochemical and pharma industries. EBITDA/APAT were 9/6% above our estimates, owing to an 8% rise in revenue, lower-than-expected raw material cost, and finance cost, offset by lower-than-expected other income and higher-than-expected tax outgo.

Bandhan Bank (NS:BANH): Despite a strong rebound in advances (+20% YoY), Bandhan reported a ~14% miss on account of soft NIMs (8%) and lower other income (-66% YoY). Incremental growth was led by non-EEB businesses, in line with the bank’s strategy to drive portfolio diversification (FY25 targeted Group EEB share of the portfolio at 26%). Gross slippages were elevated (~5.4%), stemming from the EEB portfolio due to Assam floods/restructuring resulting in a 79bps QoQ increase in GNPA. We remain watchful of the asset quality and the impact of a shift in portfolio mix on the bank’s steady-state return metrics. We reduce our FY23E /FY24E estimates to factor in lower other income and higher credit costs. Maintain BUY with a revised target price of INR396 (2.7x Mar-24 ABVPS).

Mphasis (NS:MBFL): Mphasis (MPHL IN) posted lower revenue and in-line margin in Q1. Growth in direct international business (+2.4% QoQ CC) was impacted by softness in the mortgage business unit. MPHL’s growth prospects remain strong, basis (1) healthy deal intake (USD 302mn net-new TCV in Q1FY23, up 18% YoY ex-large deal of USD 250mn won in Q1FY22); (2) trending deal pipeline (up 6% QoQ and 10% YoY); (3) lower revenue contribution of the DXC business.

UltraTech Cement

Strong margin performance

We maintain BUY on UltraTech (UTCEM) with an unchanged target price of INR 7,295 (16x Mar’24E consolidated EBITDA). We continue to like the company for its strong growth and margin outlook and balance sheet management. UTCEM’s Q1FY23 consolidated EBITDA came in ~10/15% ahead of ours/consensus numbers. Due to elevated fuel prices, UTCEM’s consolidated EBITDA/APAT in Q1FY23 fell 6/7% YoY (despite 28% revenue growth). While unitary EBITDA fell 20% YoY, it rebounded 11% QoQ to a healthy INR 1,236/MT. UTCEM cautioned that its fuel cost has not yet peaked out. It will be adding ~40mn MT capacity during FY23-25E, expanding its grey capacity to 154mn MT by the end of FY25E. It also expects to double its green power share to 36% in FY25, vs 18% currently.

Q1FY23 performance: EBITDA came in ~10/15% ahead of ours/consensus numbers on NSR beat. Grey sales volume fell 10% QoQ, but went up 16% YoY (on a low base of last year). NSR firmed up 6/10% QoQ/YoY on healthy pricing gains. White cement and putty revenue rose 38% YoY (-8% QoQ). RMC revenue firmed up 77/6% YoY/QoQ. Blended opex inflated 5/22% QoQ/YoY (in line with our estimate). Input cost went up 4% QoQ (on fuel price increase), while fixed cost was up 9% QoQ (in line with volume loss). Unitary EBITDA expanded 11% QoQ (down 20% YoY) to INR 1,236 per MT. Cost inflation pulled down consolidated EBITDA/APAT by 6/7% YoY (despite 28% revenue growth). Consolidated net debt increased 35% QoQ amid ongoing expansion.

Con call KTAs, other updates, and outlook: UTCEM guided June-22 exit price is down ~3-5% vs Q1FY23 due to the onset of monsoon. It expects its energy cost to continue to rise QoQ for 2-3 quarters. UTCEM will spend ~INT 60bn in Capex in FY23E, which also includes phase-2 Capex. It plans to add 16.7mn MT capacity by FY23 end and another ~23mn MT (across the north, central, east, and south by FY25E). It is targeting a grey capacity of 154mn MT by FY25. UTCEM is also aggressively expanding its green power capacities with a target of ~36% share by FY25 (Q1FY23 - 19%). We maintain our FY23/24E estimates as well as target price on the stock

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