UltraTech Cement : Q2FY11 Result Disappoints Challenges Stays - Centrum

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Result Disappoints Challenges Stays
UltraTech Cement’s Q2 results were disappointing with
EBIDTA and PAT 30% and 49.5% below our estimates. The
company faces headwinds with increasing energy costs
and un-sustainable cement prices hikes. We believe the
current valuation driven up by the steroid of cement price
hikes should be seen as an opportunity to reduce
exposure to the stock. Maintain Sell.
􀂁 Disappointing results: Q2 EBIDTA and PAT were 30%
and 49.5% below our estimates at Rs 4.08bn (13% YoY
decline and flat QoQ) and Rs1.16 bn (54% yoy and 52%
qoq decline) respectively. Net sales were in line at Rs32.14
bn (up 106% yoy and 80% qoq). The results are not
comparable due to the merger of Samrudhhi Cement in
Q2FY11.
􀂁 Steep cost pressure in soft price scenario: Steep energy
cost pressure (per ton cost up 21% YoY and 13% qoq) in a
challenging pricing scenario (blended realization down
14% YoY and 6.3% QoQ) led to sharp pressure on margin
(18pp yoy and 10pp QoQ contraction). Even after prices
were raised in Sept 10, the outlook remains challenging
for the next 12-18 months on account of the surplus.
􀂁 The steroid driven run up makes the stock expensive:
The recent run up in stock post cement price hike makes
the stock trade at PE of 17.4X FY11E, EV/E of 9x, P/BV of
2.8x and EV/Ton of $140 makes the stock expensive.
Maintain Sell with a target price of Rs830 valuing the
stock at PE of 13x, EV/E of 7x , P/BV of 2.1 x and EV/Ton of
$109