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India Cement Sector
RESULTS
Positive earnings surprise, sustaining margins
to be a challenge
■
Earnings surprise positively on lower-than-expected costs: Aggregate
Mar-11 quarterly earnings for ACC, Ambuja and Ultratech came in 18% ahead
of our estimates, primarily due to lower-than-expected costs (in case of ACC
and Ambuja) and higher other income and lower tax realisation (in case of
Ultratech). Despite a 10% YoY increase in aggregate sales, recurring PAT
was down 2% YoY due to cost escalations. Average realisation went up 8%
YoY and 11% QoQ, and average EBITDA/t stood at Rs978/t compared to our
estimate of Rs877/t. EBITDA/t has witnessed significant improvement over the
last two quarters, but is still Rs273/t below previous peak levels.
■
Raise estimates and target price: On the back of better cement pricing
during the last 3-4 months, we now build in 2-6% higher realisations over
CY11-13 (FY12-13 for Ultratech) resulting in 3-9% increase in EPS
estimates for ACC and Ambuja (CY11/12) and 7% increase for Ultratech
(FY12-13). We raise our target price for ACC to Rs824 (from Rs811), for
Ambuja to Rs113 (from Rs111) and for Ultratech to Rs840 (from Rs839).
■
Maintain UNDERPERFORM: While we revise upwards our earnings
estimates, we believe the industry fundamentals are still not favourable.
Demand growth for FY11 stood at only 5% and utilisation rates are still lower
at 80% levels compared to over 97% utilisation rates (adjusted) witnessed
during FY06-08. In near term, we expect cement prices to come under
pressure as monsoons kick in. Further, ACC, Ambuja and Ultratech are
trading at forward EV/t of US$134-181, which we believe is unjustified in the
current environment compared to the replacement cost of ~US$105/t. We
maintain our UNDERPERFORM rating on ACC, Ambuja and Ultratech (with
21-28% potential downside).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Cement Sector
RESULTS
Positive earnings surprise, sustaining margins
to be a challenge
■
Earnings surprise positively on lower-than-expected costs: Aggregate
Mar-11 quarterly earnings for ACC, Ambuja and Ultratech came in 18% ahead
of our estimates, primarily due to lower-than-expected costs (in case of ACC
and Ambuja) and higher other income and lower tax realisation (in case of
Ultratech). Despite a 10% YoY increase in aggregate sales, recurring PAT
was down 2% YoY due to cost escalations. Average realisation went up 8%
YoY and 11% QoQ, and average EBITDA/t stood at Rs978/t compared to our
estimate of Rs877/t. EBITDA/t has witnessed significant improvement over the
last two quarters, but is still Rs273/t below previous peak levels.
■
Raise estimates and target price: On the back of better cement pricing
during the last 3-4 months, we now build in 2-6% higher realisations over
CY11-13 (FY12-13 for Ultratech) resulting in 3-9% increase in EPS
estimates for ACC and Ambuja (CY11/12) and 7% increase for Ultratech
(FY12-13). We raise our target price for ACC to Rs824 (from Rs811), for
Ambuja to Rs113 (from Rs111) and for Ultratech to Rs840 (from Rs839).
■
Maintain UNDERPERFORM: While we revise upwards our earnings
estimates, we believe the industry fundamentals are still not favourable.
Demand growth for FY11 stood at only 5% and utilisation rates are still lower
at 80% levels compared to over 97% utilisation rates (adjusted) witnessed
during FY06-08. In near term, we expect cement prices to come under
pressure as monsoons kick in. Further, ACC, Ambuja and Ultratech are
trading at forward EV/t of US$134-181, which we believe is unjustified in the
current environment compared to the replacement cost of ~US$105/t. We
maintain our UNDERPERFORM rating on ACC, Ambuja and Ultratech (with
21-28% potential downside).
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