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ULTRATECH CEMENT
Results in line with estimates
Realisation improve Q-o-Q due to price hikes in South
With average prices in South rising ~25%, Ultratech Cement’s (~26% exposure
to South) grey cement realisation increased 8.5% Q-o-Q to INR 3,279/tonne. As
a result the EBITDA/tonne for the quarter increased to INR 709 from INR 438 in
Q2FY11. Recovering from the lows seen in November and December 2010,
prices across regions have increased by INR 10-20/bag in January 2011 so far.
Average realisation could improve further in Q4FY11. Grey cement volumes for
the quarter, at 9.33 mn tonnes (9.14 mn tonnes domestic sales + 0.19 mn
tonnes exports), disappointed, growing just 1.3% Y-o-Y on a comparable basis.
EBIDTA and PAT at INR 7.1 bn and INR 3.2 bn were in-line with our estimates.
Costs increase marginally; expected to rise further
Overall cost per tonne for the quarter increased marginally by ~1% Q-o-Q.
Power and fuel cost per tonne remained flat at INR 879 as a result of low-cost
coal inventory and reduction in per unit consumption of power. However, with
international coal prices increasing ~50% in the last quarter, energy cost is
slated to increase, going ahead. Freight cost per tonne rose ~5% Q-o-Q due to
increase in lead distance. With rail freight being revised up by 4% w.e.f.
December 27, 2010, cost will increase further. On an absolute basis, other
expenditure increased 3.6% Q-o-Q, to INR 6.8 bn, and is estimated to remain
high with the expected rise in advertisement expenses (due to sponsorship for
cricket events in Q4).
ETA Star incurs loss; recovery unlikely in near term
With volumes of ~0.75 mn, ETA Star has reported revenues of INR 1,910 mn.
Though PBITDA was positive for the quarter, the newly acquired 80% subsidiary
has incurred a PAT loss of INR 270 mn. With cement prices in Middle East
remaining subdued at ~USD 54/tonne against USD 84/tonne last year,
significant recovery in performance is not expected in the near term.
Outlook and valuations: Subdued industry outlook; maintain ‘REDUCE’
Though cement prices are likely to remain firm in the near term (owing to peak
season demand), we expect sharp declines in the lean season. The company has
a very high exposure to South and West (~48%) - regions highly vulnerable to
price declines due to huge overcapacity. With current valuations of FY12E USD
134 EV/tonne and 8.7x EV/EBITDA appearing expensive, we maintain our
‘REDUCE’ recommendation on the stock with ‘Sector Underperformer’ rating.
Company Description
Ultratech Cement, post the merger with Samruddhi Cement (demerged cement arm of
Grasim Industries) has a combined cement capacity of 48.8 mn tpa, 500 MW Thermal
Captive Power Plants ( that meets ~80% of requirement) with pan India presence
aggregating to market share of ~19%. Grasim, the flagship company of the AV Birla
Group, is a majority shareholder in UTCL with 60.3% ownership.
Investment Theme
The industry outlook is estimated to be subdued due to 80% capacity utilisation and poor
pricing power over the next two years. With current valuation of USD 134 EV/tonne
FY12E defying negative industry fundamentals, we maintain our Reduce recommendation
on the stock.
Key Risks
Robust demand growth, much higher than our estimates, leading to price hikes above
our assumptions.
Significant decline in the power and fuel cost.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
ULTRATECH CEMENT
Results in line with estimates
Realisation improve Q-o-Q due to price hikes in South
With average prices in South rising ~25%, Ultratech Cement’s (~26% exposure
to South) grey cement realisation increased 8.5% Q-o-Q to INR 3,279/tonne. As
a result the EBITDA/tonne for the quarter increased to INR 709 from INR 438 in
Q2FY11. Recovering from the lows seen in November and December 2010,
prices across regions have increased by INR 10-20/bag in January 2011 so far.
Average realisation could improve further in Q4FY11. Grey cement volumes for
the quarter, at 9.33 mn tonnes (9.14 mn tonnes domestic sales + 0.19 mn
tonnes exports), disappointed, growing just 1.3% Y-o-Y on a comparable basis.
EBIDTA and PAT at INR 7.1 bn and INR 3.2 bn were in-line with our estimates.
Costs increase marginally; expected to rise further
Overall cost per tonne for the quarter increased marginally by ~1% Q-o-Q.
Power and fuel cost per tonne remained flat at INR 879 as a result of low-cost
coal inventory and reduction in per unit consumption of power. However, with
international coal prices increasing ~50% in the last quarter, energy cost is
slated to increase, going ahead. Freight cost per tonne rose ~5% Q-o-Q due to
increase in lead distance. With rail freight being revised up by 4% w.e.f.
December 27, 2010, cost will increase further. On an absolute basis, other
expenditure increased 3.6% Q-o-Q, to INR 6.8 bn, and is estimated to remain
high with the expected rise in advertisement expenses (due to sponsorship for
cricket events in Q4).
ETA Star incurs loss; recovery unlikely in near term
With volumes of ~0.75 mn, ETA Star has reported revenues of INR 1,910 mn.
Though PBITDA was positive for the quarter, the newly acquired 80% subsidiary
has incurred a PAT loss of INR 270 mn. With cement prices in Middle East
remaining subdued at ~USD 54/tonne against USD 84/tonne last year,
significant recovery in performance is not expected in the near term.
Outlook and valuations: Subdued industry outlook; maintain ‘REDUCE’
Though cement prices are likely to remain firm in the near term (owing to peak
season demand), we expect sharp declines in the lean season. The company has
a very high exposure to South and West (~48%) - regions highly vulnerable to
price declines due to huge overcapacity. With current valuations of FY12E USD
134 EV/tonne and 8.7x EV/EBITDA appearing expensive, we maintain our
‘REDUCE’ recommendation on the stock with ‘Sector Underperformer’ rating.
Company Description
Ultratech Cement, post the merger with Samruddhi Cement (demerged cement arm of
Grasim Industries) has a combined cement capacity of 48.8 mn tpa, 500 MW Thermal
Captive Power Plants ( that meets ~80% of requirement) with pan India presence
aggregating to market share of ~19%. Grasim, the flagship company of the AV Birla
Group, is a majority shareholder in UTCL with 60.3% ownership.
Investment Theme
The industry outlook is estimated to be subdued due to 80% capacity utilisation and poor
pricing power over the next two years. With current valuation of USD 134 EV/tonne
FY12E defying negative industry fundamentals, we maintain our Reduce recommendation
on the stock.
Key Risks
Robust demand growth, much higher than our estimates, leading to price hikes above
our assumptions.
Significant decline in the power and fuel cost.
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