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UltraTech Cement Ltd
Neutral
ULTC.BO, UTCEM IN
Inline 3Q; Anemic demand an industry wide problem
• Inline 3QFY11 results: UltraTech (UTCEM) reported Dec-qtr EBITDA of
Rs7.33bn (up 68% q/q after a very weak 2Q), inline with JPMe but ahead of the
consensus estimate of Rs7bn driven by the 12% q/q increase in realizations.
Volume growth remained tepid (up 3% q/q) given weak trend in South and slow
recovery in North/West India. The key markets of AP has seen sharp price
increases (though volume recovery has been abysmal) helping blended ASP for
UTCEM. EBITDA/MT at Rs781/MT recovered 63% q/q and was in line with
our estimates. Reported PAT was Rs3.2bn, inline with our estimates and
slightly ahead of the Rs3bn consensus.
• Cost pressures to sustain into next few quarters as coal bites: Cost pressures
continued in the quarter with total operating costs/MT increasing 4% q/q. Power
and fuel costs increased 3% q/q. We expect cost pressures to sustain at least
over the next 3 quarters, mainly on thermal coal prices. Thermal coal prices
increased nearly 14% in the Dec quarter averaging $108/MT and continue to
trend upward to $130/MT levels currently. We see this as an industry wide
problem given Indian cement industry is increasingly reliant on imported/eauction
coal
• Cement prices have been increasing in select regions, but demand is
anemic: Cement prices have been increasing in select markets in North/West
India, and holding in South India. March-11E quarter is likely to benefit from
the price increases. However demand continues to be anemic in the country.
Analyzing the demand trends, the 9 key states (UP, Haryana, Delhi, Orissa,
AP, TN, Maharashtra, MP and Gujarat) which accounted for 73% of the
India's incremental cement consumption between FY06-10 and cumulative
CAGR was 11.3% during this period v/s all India CAGR of 10%, currently
cement demand is up only 3% YTD FY11. While AP is the key laggard,
demand is lack luster in the other key states as well. We attribute this to the
completion of mega infra projects and not much progress on new projects.
We see down side risks to our industry demand growth of 7% and 9% in
FY11-12E.
• Long term story intact, though near term valuations in context of industry
dynamics remain appealing: We maintain our Neutral rating with a revised
Valuations and Key risks
We cut our FY11-12E EPS estimates by 9% and 18% for FY11-12E on lower
volumes, and other income (as we build in capex). We like UTCEM's large pan-India
capacity base, strong free cash flow generation, and underlying profitability of the
new UTCEM, and believe it is likely to be ahead of peers in the next up-cycle;
however current valuations leave little room for upside on a 1-year horizon. We
expect the recent sharp cement price increases seen in South India to gradually
recede and would revisit the stock once we see cement price/equity price pull backs.
Key risks include continued elevated cement prices and sharply lower coal costs.
March-12 PT of Rs1150 based on $130/MT FY13E EV/MT.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UltraTech Cement Ltd
Neutral
ULTC.BO, UTCEM IN
Inline 3Q; Anemic demand an industry wide problem
• Inline 3QFY11 results: UltraTech (UTCEM) reported Dec-qtr EBITDA of
Rs7.33bn (up 68% q/q after a very weak 2Q), inline with JPMe but ahead of the
consensus estimate of Rs7bn driven by the 12% q/q increase in realizations.
Volume growth remained tepid (up 3% q/q) given weak trend in South and slow
recovery in North/West India. The key markets of AP has seen sharp price
increases (though volume recovery has been abysmal) helping blended ASP for
UTCEM. EBITDA/MT at Rs781/MT recovered 63% q/q and was in line with
our estimates. Reported PAT was Rs3.2bn, inline with our estimates and
slightly ahead of the Rs3bn consensus.
• Cost pressures to sustain into next few quarters as coal bites: Cost pressures
continued in the quarter with total operating costs/MT increasing 4% q/q. Power
and fuel costs increased 3% q/q. We expect cost pressures to sustain at least
over the next 3 quarters, mainly on thermal coal prices. Thermal coal prices
increased nearly 14% in the Dec quarter averaging $108/MT and continue to
trend upward to $130/MT levels currently. We see this as an industry wide
problem given Indian cement industry is increasingly reliant on imported/eauction
coal
• Cement prices have been increasing in select regions, but demand is
anemic: Cement prices have been increasing in select markets in North/West
India, and holding in South India. March-11E quarter is likely to benefit from
the price increases. However demand continues to be anemic in the country.
Analyzing the demand trends, the 9 key states (UP, Haryana, Delhi, Orissa,
AP, TN, Maharashtra, MP and Gujarat) which accounted for 73% of the
India's incremental cement consumption between FY06-10 and cumulative
CAGR was 11.3% during this period v/s all India CAGR of 10%, currently
cement demand is up only 3% YTD FY11. While AP is the key laggard,
demand is lack luster in the other key states as well. We attribute this to the
completion of mega infra projects and not much progress on new projects.
We see down side risks to our industry demand growth of 7% and 9% in
FY11-12E.
• Long term story intact, though near term valuations in context of industry
dynamics remain appealing: We maintain our Neutral rating with a revised
Valuations and Key risks
We cut our FY11-12E EPS estimates by 9% and 18% for FY11-12E on lower
volumes, and other income (as we build in capex). We like UTCEM's large pan-India
capacity base, strong free cash flow generation, and underlying profitability of the
new UTCEM, and believe it is likely to be ahead of peers in the next up-cycle;
however current valuations leave little room for upside on a 1-year horizon. We
expect the recent sharp cement price increases seen in South India to gradually
recede and would revisit the stock once we see cement price/equity price pull backs.
Key risks include continued elevated cement prices and sharply lower coal costs.
March-12 PT of Rs1150 based on $130/MT FY13E EV/MT.
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