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Sequential improvement on the cards,
increased volatility in prices expected
We expect our cement universe to register 3.5% YoY and
13.6% QoQ volume growth during Q4FY11. Average
cement realization is expected to rise 4.6% YoY and 7.1%
QoQ to Rs 3,468/tonne. On a Pan-India basis, cement is
expected to retail at Rs253/bag vs Rs 235/bag in Q3FY11.
We expect increased volatility in retail prices and expect a
correction in a few months as the demand-supply mismatch
widens to 42-44mt in FY11 from 24-25mt in FY11). At the
same time, rising costs of raw materials, freight (~4% QoQ
increase in railway freight rates) and energy (international
coal prices are up by 24% YoY to US$122 and Coal India
hiked coal prices by 30% during Q4) would prolong the pain
for manufacturers. We maintain Sell on ACC, Ambuja
Cement and Ultra Tech Cement. We have a Hold on Grasim
Industries and Shree Cements. We prefer mid-caps like
Orient Paper, India Cements and JK Cement due to
attractive valuations and maintain Buy.
Despatch growth muted: Cement despatches are
expected to grow by 3.5% YoY to 30.35mt. India Cements
and OPIL are expected to register 10.5% YoY and 4.8% YoY
decline to 2.6mt and 1mt, respectively, driven by sluggish
demand and higher glut in their key markets. JK Cement is
expected to register robust 15.6% YoY volume growth to
1.6mt.
Realization growth expected: Retail price across India
increased to Rs253/bag in Q4FY11 from Rs235/bag in
Q3FY11 driven by production discipline between
manufacturers. Average realization/tonne of our coverage
universe is expected to improve 4.6% YoY and 7.1% QoQ to
Rs3,468.
Upward revisions in FY11E EPS for Grasim, UltraTech
and JK Cement: We expect Ultra Tech FY11E EPS to be
Rs52.9 against Rs50.3 (increase of 5.2%), and JK Cement’s
FY11E EPS to be Rs3.8 against Rs2.9 earlier (revision of
31%) mainly because of higher than expected retail prices
in southern India. Led by increase in Ultra Tech’s profit
increase, we expect Grasim’s EPS to be Rs 215, upwards
revision of 4.5%.
Prefer mid-caps due to attractive valuations: Large-cap
cement companies are trading at a premium to their mean
trading multiples, which we believe is unwarranted
considering the declining return ratios. We maintain our
Sell ratings on ACC, Ambuja and Ultra Tech. We have a
Hold on Grasim Industries and Shree Cements. We
maintain our Buy on mid-caps like Orient Paper, India
Cements and JK Cement due to attractive valuations.
ACC (Sell; Target Price: Rs860)
Net sales are expected to increase 10.5% YoY (and 18.6 % QoQ) to Rs 23.2bn. EBITDA is expected
to decline 16.6% YoY (but up 137% QoQ) to Rs5.2bn driven by the increase in raw material,
employee, freight and energy costs. Adjusted PAT is expected to decline 1.8% YoY to Rs 3.3 bn
(up 29.8% QoQ)
Sales are likely to be impacted by the 11.5% YoY (and 11.1% QoQ) volume growth to 6.2mt and
0.9% YoY decline in realizations to Rs3,734/tonne (7% QoQ growth)
EBITDA margin is expected to decline 7.3pp YoY (but expand 11.1pp QoQ) to 22.3%.
Ambuja Cements (Sell; Target Price: Rs113)
We expect Q4 net sales to increase 9.4% YoY and 21.8% QoQ to Rs21.8bn. EBIDTA and PAT are
expected to decline by 14.8% YoY and 31.8% YoY to Rs5.3bn and Rs3 bn, respectively
Sales are expected to be driven by the 7.8% YoY volume growth to 5.7mt and 1.5% YoY growth
in realization to Rs3,832/tonne.
EBITDA margin is expected to decline 6.9pp YoY (but expand 6.8pp QoQ) to 24.4%
Ultra Tech Cement (Sell; Target Price: Rs784)
We expect 121.7% YoY net sales increase to R 42.3bn, 125% YoY EBITDA growth to Rs9bn and
96.6% YoY PAT growth to Rs4.5bn in Q4
However, it should be noted that the results are not comparable on a YoY basis as Q4 results
would be inclusive of Samrudhhi Cement, which was merged with the company effective July 1,
2010.
Domestic cement sales are estimated to grow 0.7% YoY and 11.8% QoQ to 10.4mt on a like-tolike
basis. Domestic realization is expected to improve 4.5% YoY and 7% QoQ to Rs3,508/tonne.
EBITDA margin is expected to be 21.4% vs 21.1% in Q4FY10 and 19.1% in Q3FY11
Grasim Industries (Hold; Target Price: Rs2,697)
Consolidated revenue is expected to increase 0.9% YoY and 7.5% QoQ to Rs54.3bn. EBITDA is
expected to decline 2.2% YoY (but increase 17.3% QoQ) to Rs13.1bn
Adjusted PAT is expected to decline 12.7% YoY to Rs5.7bn. However, this will be an increase of
13.9% QoQ. The results are not comparable on a YoY basis due to de-merger of the cement
business
We expect the company to report standalone revenue of Rs12bn (up 8.5% YoY), EBITDA of
Rs4.1bn (up 34.5% YoY) and PAT of Rs3bn (up 0.7% YoY) during Q4. The results are not
comparable YoY due to the de-merger of cement business during Q4FY10
EBITDA margin is expected to decline 0.8pp YoY (but up 3.4pp QoQ) to 24.2%
Shree Cement (Hold; Target Price: Rs2,033)
We expect Q4FY11 net sales to improve 3.8% YoY and 25.7% QoQ to Rs9.8bn. EBIDTA is
expected to decline 13.9% YoY (but up 57.3% QoQ) to Rs2.5bn
We estimate the company to report a loss of Rs88mn vs loss of Rs165mn in Q4FY10 and profit of
Rs333.9mn in Q3FY11
Sales are expected to be driven by the 2.7% YoY volume growth to 2.8mt, 1.7% YoY decline in
realization to Rs3,195/tonne and 75% YoY increase in power segment’s revenue to Rs974mn
EBITDA margin is expected to contract 9.2pp YoY to 25.3%. However, on a sequential basis, an
improvement of 5.1pp is expected
The company is expected to report a steep 85.9% increase in depreciation to Rs 2.44 bn, which
will drag the profits down.
India Cements (Buy; Target Price: Rs148)
Net sales is expected to increase 2.9% YoY and 27.1% QoQ to Rs10.2bn driven by the 10.5% YoY
decline in sales volume to 2.6mt and 23.5% YoY improvement in realization to Rs3,791/tonne
EBITDA is expected to increase 39.8% YoY (and 39.5% QoQ) to Rs1.76bn. EBITDA margin is
expected to improve 4.3pp YoY and 1.3pp QoQ to 17.4%. Adjusted PAT is expected to increase
42.7% YoY and 154.6% QoQ to Rs547mn
We estimate IPL revenues at Rs115mn, wind mill revenues at Rs30mn and freight earnings at
Rs127mn during the quarter
JK Cement (Buy; Target Price: Rs179)
We expect 11.7% YoY and 27% QoQ growth in net sales to Rs6bn which would be driven by
15.6% YoY volume growth to 1.6mt and 5.1% YoY decline in realization to Rs3,207/tonne
EBITDA and PAT are expected to decline 28.2% YoY and 62.9% YoY to Rs745mn and Rs163mn,
respectively
EBITDA margin is expected to decline 6.9pp YoY to 12.4%. However, an improvement of 1pp
QoQ is expected
Orient Paper & Industries (Buy; Target Price: Rs75)
We expect Q4 net sales to increase 4.1% YoY and 30.1% QoQ to Rs5.7bn. EBITDA and PAT are
expected to increase 12.6% YoY and 8.5% YoY to Rs1.18bn and Rs595mn, respectively
We estimate 6% YoY increase in cement revenue to Rs2.9bn due to 14.9% YoY increase in
realization to Rs3,010/tonne and 4.8% YoY decline in volume to 1mt
We have assumed paper revenue at Rs900mn (up 14.5% YoY) and electrical division’s revenue
at Rs1.9bn (flat YoY, but up 59.7% QoQ)
EBITDA margin is expected to improve 1.6pp YoY and 3.8pp QoQ to 20.7%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sequential improvement on the cards,
increased volatility in prices expected
We expect our cement universe to register 3.5% YoY and
13.6% QoQ volume growth during Q4FY11. Average
cement realization is expected to rise 4.6% YoY and 7.1%
QoQ to Rs 3,468/tonne. On a Pan-India basis, cement is
expected to retail at Rs253/bag vs Rs 235/bag in Q3FY11.
We expect increased volatility in retail prices and expect a
correction in a few months as the demand-supply mismatch
widens to 42-44mt in FY11 from 24-25mt in FY11). At the
same time, rising costs of raw materials, freight (~4% QoQ
increase in railway freight rates) and energy (international
coal prices are up by 24% YoY to US$122 and Coal India
hiked coal prices by 30% during Q4) would prolong the pain
for manufacturers. We maintain Sell on ACC, Ambuja
Cement and Ultra Tech Cement. We have a Hold on Grasim
Industries and Shree Cements. We prefer mid-caps like
Orient Paper, India Cements and JK Cement due to
attractive valuations and maintain Buy.
Despatch growth muted: Cement despatches are
expected to grow by 3.5% YoY to 30.35mt. India Cements
and OPIL are expected to register 10.5% YoY and 4.8% YoY
decline to 2.6mt and 1mt, respectively, driven by sluggish
demand and higher glut in their key markets. JK Cement is
expected to register robust 15.6% YoY volume growth to
1.6mt.
Realization growth expected: Retail price across India
increased to Rs253/bag in Q4FY11 from Rs235/bag in
Q3FY11 driven by production discipline between
manufacturers. Average realization/tonne of our coverage
universe is expected to improve 4.6% YoY and 7.1% QoQ to
Rs3,468.
Upward revisions in FY11E EPS for Grasim, UltraTech
and JK Cement: We expect Ultra Tech FY11E EPS to be
Rs52.9 against Rs50.3 (increase of 5.2%), and JK Cement’s
FY11E EPS to be Rs3.8 against Rs2.9 earlier (revision of
31%) mainly because of higher than expected retail prices
in southern India. Led by increase in Ultra Tech’s profit
increase, we expect Grasim’s EPS to be Rs 215, upwards
revision of 4.5%.
Prefer mid-caps due to attractive valuations: Large-cap
cement companies are trading at a premium to their mean
trading multiples, which we believe is unwarranted
considering the declining return ratios. We maintain our
Sell ratings on ACC, Ambuja and Ultra Tech. We have a
Hold on Grasim Industries and Shree Cements. We
maintain our Buy on mid-caps like Orient Paper, India
Cements and JK Cement due to attractive valuations.
ACC (Sell; Target Price: Rs860)
Net sales are expected to increase 10.5% YoY (and 18.6 % QoQ) to Rs 23.2bn. EBITDA is expected
to decline 16.6% YoY (but up 137% QoQ) to Rs5.2bn driven by the increase in raw material,
employee, freight and energy costs. Adjusted PAT is expected to decline 1.8% YoY to Rs 3.3 bn
(up 29.8% QoQ)
Sales are likely to be impacted by the 11.5% YoY (and 11.1% QoQ) volume growth to 6.2mt and
0.9% YoY decline in realizations to Rs3,734/tonne (7% QoQ growth)
EBITDA margin is expected to decline 7.3pp YoY (but expand 11.1pp QoQ) to 22.3%.
Ambuja Cements (Sell; Target Price: Rs113)
We expect Q4 net sales to increase 9.4% YoY and 21.8% QoQ to Rs21.8bn. EBIDTA and PAT are
expected to decline by 14.8% YoY and 31.8% YoY to Rs5.3bn and Rs3 bn, respectively
Sales are expected to be driven by the 7.8% YoY volume growth to 5.7mt and 1.5% YoY growth
in realization to Rs3,832/tonne.
EBITDA margin is expected to decline 6.9pp YoY (but expand 6.8pp QoQ) to 24.4%
Ultra Tech Cement (Sell; Target Price: Rs784)
We expect 121.7% YoY net sales increase to R 42.3bn, 125% YoY EBITDA growth to Rs9bn and
96.6% YoY PAT growth to Rs4.5bn in Q4
However, it should be noted that the results are not comparable on a YoY basis as Q4 results
would be inclusive of Samrudhhi Cement, which was merged with the company effective July 1,
2010.
Domestic cement sales are estimated to grow 0.7% YoY and 11.8% QoQ to 10.4mt on a like-tolike
basis. Domestic realization is expected to improve 4.5% YoY and 7% QoQ to Rs3,508/tonne.
EBITDA margin is expected to be 21.4% vs 21.1% in Q4FY10 and 19.1% in Q3FY11
Grasim Industries (Hold; Target Price: Rs2,697)
Consolidated revenue is expected to increase 0.9% YoY and 7.5% QoQ to Rs54.3bn. EBITDA is
expected to decline 2.2% YoY (but increase 17.3% QoQ) to Rs13.1bn
Adjusted PAT is expected to decline 12.7% YoY to Rs5.7bn. However, this will be an increase of
13.9% QoQ. The results are not comparable on a YoY basis due to de-merger of the cement
business
We expect the company to report standalone revenue of Rs12bn (up 8.5% YoY), EBITDA of
Rs4.1bn (up 34.5% YoY) and PAT of Rs3bn (up 0.7% YoY) during Q4. The results are not
comparable YoY due to the de-merger of cement business during Q4FY10
EBITDA margin is expected to decline 0.8pp YoY (but up 3.4pp QoQ) to 24.2%
Shree Cement (Hold; Target Price: Rs2,033)
We expect Q4FY11 net sales to improve 3.8% YoY and 25.7% QoQ to Rs9.8bn. EBIDTA is
expected to decline 13.9% YoY (but up 57.3% QoQ) to Rs2.5bn
We estimate the company to report a loss of Rs88mn vs loss of Rs165mn in Q4FY10 and profit of
Rs333.9mn in Q3FY11
Sales are expected to be driven by the 2.7% YoY volume growth to 2.8mt, 1.7% YoY decline in
realization to Rs3,195/tonne and 75% YoY increase in power segment’s revenue to Rs974mn
EBITDA margin is expected to contract 9.2pp YoY to 25.3%. However, on a sequential basis, an
improvement of 5.1pp is expected
The company is expected to report a steep 85.9% increase in depreciation to Rs 2.44 bn, which
will drag the profits down.
India Cements (Buy; Target Price: Rs148)
Net sales is expected to increase 2.9% YoY and 27.1% QoQ to Rs10.2bn driven by the 10.5% YoY
decline in sales volume to 2.6mt and 23.5% YoY improvement in realization to Rs3,791/tonne
EBITDA is expected to increase 39.8% YoY (and 39.5% QoQ) to Rs1.76bn. EBITDA margin is
expected to improve 4.3pp YoY and 1.3pp QoQ to 17.4%. Adjusted PAT is expected to increase
42.7% YoY and 154.6% QoQ to Rs547mn
We estimate IPL revenues at Rs115mn, wind mill revenues at Rs30mn and freight earnings at
Rs127mn during the quarter
JK Cement (Buy; Target Price: Rs179)
We expect 11.7% YoY and 27% QoQ growth in net sales to Rs6bn which would be driven by
15.6% YoY volume growth to 1.6mt and 5.1% YoY decline in realization to Rs3,207/tonne
EBITDA and PAT are expected to decline 28.2% YoY and 62.9% YoY to Rs745mn and Rs163mn,
respectively
EBITDA margin is expected to decline 6.9pp YoY to 12.4%. However, an improvement of 1pp
QoQ is expected
Orient Paper & Industries (Buy; Target Price: Rs75)
We expect Q4 net sales to increase 4.1% YoY and 30.1% QoQ to Rs5.7bn. EBITDA and PAT are
expected to increase 12.6% YoY and 8.5% YoY to Rs1.18bn and Rs595mn, respectively
We estimate 6% YoY increase in cement revenue to Rs2.9bn due to 14.9% YoY increase in
realization to Rs3,010/tonne and 4.8% YoY decline in volume to 1mt
We have assumed paper revenue at Rs900mn (up 14.5% YoY) and electrical division’s revenue
at Rs1.9bn (flat YoY, but up 59.7% QoQ)
EBITDA margin is expected to improve 1.6pp YoY and 3.8pp QoQ to 20.7%.
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