UltraTech Cement Performance to improve from 3QFY11; Buy :: Anand Rathi

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UltraTech Cement
Performance to improve from 3QFY11; Buy


 2QFY11 results. UltraTech’s 2QFY11 net profit was below our and
consensus estimates. Decline in realisations and in volumes impacted
profitability. However, we believe both volumes and realisations
would pick up from 3QFY11. We maintain our Buy rating and our
target price at `1,255/share.
 Realizations decline. At `3,490/ton, blended realization (grey and
white cement) declined yoy and qoq in line with the industry. Besides
revenue from white cement (`2.27bn) and RMC (`2.8bn) division,
grey cement realisation was `2,980/ton. Realisations declined due to
the high exposure to the southern region (30% post-merger), where
prices had corrected the most. Cement aggregate volume was 9.21m
tons, including 0.12m of white cement and 0.23m of clinker sales.
 EBITDA/ton drops. EBITDA/ton (blended) was ~`440, dipping
mainly due to the fall in realisations coupled with a rise in costs. The
hike in coal prices led to the rise in power & fuel/ton costs to `950.
 Merger with ‘Samruddhi’ and Outlook. During the quarter, the
company was amalgamated with Samruddhi and completed the
acquisition of ETA Star (UAE), taking total capacity to 52m tons. It
expects cement demand to grow 10% following good monsoons and
government initiative to boost rural, infra and housing demand.
 Valuations. At our target price of `1,255, the stock would trade at
7.5x FY12e EV/EBITDA . The target price implies PE of 14.5x and
EV/ton of US$140. Post-merger, the target implies a PE of 12x and
an EV/ton of US$145.