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UltraTech Cement (UTCEM)
Cement
Profitability revives strongly, attractive discount continues. Ultratech (UTCEM)’s
strong sequential growth in earnings with net income of Rs6 bn, well ahead of Street
estimates, came on the back of a strong revival in pricing (+Rs20/bag qoq) and improved
sales volumes. We maintain our BUY rating noting 28% upside to our revised target
price of Rs1,350 (Rs1,250 previously) based on 7X FY2013E EBITDA. We highlight that
UTCEM trades at a steep discount (30-40%) to peers despite similar profitability and
growth profile.
Strong revenue growth partially pared by high overhead costs
UTCEM reported standalone revenues of Rs44.9 bn (6.8% yoy, 21% qoq), operating profits of
Rs10.2 bn (-4.6% yoy, 44% qoq) and net income of Rs6.1 bn (92% qoq) against our estimate of
Rs46.2 bn, Rs12.3 bn and Rs6.5 bn, respectively. We note that all comparisons are on a like-forlike
basis (post-merger). Lower-than-estimated revenues were primarily on account of lower
volumes at 10.7 mn tons (against our estimate of 11 mn tons). EBITDA miss of 17% was on
account of (1) higher-than-estimated overhead costs at Rs8.3 bn against our estimate of Rs6.6 bn
and (2) higher-than-estimated raw material cost. Reported PAT was boosted by higher other
income and reversal of prior-period tax provisions of Rs1.2 bn. Adjusting for the tax reversal, PAT
at Rs6.1 bn was marginally lower than our estimate. Operating margins improved to 22.7% in
4QFY11 from 19.1% in 3QFY11, primarily driven by an improved pricing environment.
Strong revival in cement prices as ‘industry discipline’ sets in
Cement prices saw a strong revival in 4QFY11 with All-India average cement prices increasing by
Rs40-50/bag in the past few months. We note that the price increase has been broad-based,
starting from the South in the month of September and percolating to other regions in subsequent
months. The peak construction season has traditionally seen sustenance of a firm pricing trend
until the onset of monsoon. However, we remain watchful of the overall operating environment as
sluggish demand (industry volume growth of 4.6% YTD) coupled with rising inputs costs could
potentially dent the current discipline in the industry from 2QFY12E.
Reiterate BUY—attractive valuations at significant discount to peers
We reiterate our BUY rating on UTCEM with a revised target price of Rs1,350/share (previously
Rs1,250/share) as we roll forward to FY2013E based valuations. UTCEM is currently trading at
EV/ton of US$127/ton (32% discount to ACEM and 19% discount to ACC) and EV/EBTDA of 5.3X
(31% discount to ACEM and 31% discount to ACC) on FY2013E earnings. We have revised our
EPS estimates to Rs84/share in FY2012E (previously Rs91/share) and Rs103/share in FY2013E
(previously Rs114/share), adjusting for higher overhead costs.
Detailed analysis of quarterly results
We discuss below some key highlights of 4QFY11 results. We note that all yearly
comparisons are on a like-for-like basis by consolidating Grasim’s standalone cement results
for 4QFY10.
Volumes: Total volumes improved to 10.7 mn tons (4% yoy, 9.2% qoq) comprising 10.4
mn tons of domestic sales and 0.3 mn tons of clinker exports. The sequential increase is
reflective of seasonal uptick in demand.
Realization: Blended realizations increased to Rs4,196/ton in 4QFY11 (2.7% yoy, 10.7%
qoq) driven by strong sequential revival in cement prices across the country.
Power and fuel cost: UTCEM’s power and fuel cost decreased to Rs902/ton in 4QFY11
from Rs914/ton in 3QFY11. The decrease could likely be reflective of lower clinker
production during the quarter compensated by higher raw material cost. We expect the
full impact of CIL’s 30% price hike to flow in from 1QFY12E.
Freight cost: Freight cost increased to Rs767/ton in 4QFY11 from Rs743/ton in 3QFY11
likely on account of revision in railway freights effective during the quarter. We expect
further inflation in freight cost driven by likely hike in gasoline prices in the country.
Raw material cost: Raw material cost increased sharply to Rs555/ton in 4QFY11 from
Rs496/ton in 3QFY11.
Other income of Rs1.1 bn includes a sales tax reimbursement of Rs200 mn.
Reported PAT includes reversal of prior-period tax provisions of Rs1.2 bn.
Estimated capex of Rs13 bn in FY2011
UTCEM incurred an estimated capex of Rs13 bn during FY2011 primarily for its expansion
units at Chhattisgarh and Karnataka with a total capacity of 9.2 mtpa. Management has
guided for an additional capex of Rs110 bn in the next three years which would also include
capex on up gradation and modernization of existing plants, captive power units and a bulk
packaging terminal.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UltraTech Cement (UTCEM)
Cement
Profitability revives strongly, attractive discount continues. Ultratech (UTCEM)’s
strong sequential growth in earnings with net income of Rs6 bn, well ahead of Street
estimates, came on the back of a strong revival in pricing (+Rs20/bag qoq) and improved
sales volumes. We maintain our BUY rating noting 28% upside to our revised target
price of Rs1,350 (Rs1,250 previously) based on 7X FY2013E EBITDA. We highlight that
UTCEM trades at a steep discount (30-40%) to peers despite similar profitability and
growth profile.
Strong revenue growth partially pared by high overhead costs
UTCEM reported standalone revenues of Rs44.9 bn (6.8% yoy, 21% qoq), operating profits of
Rs10.2 bn (-4.6% yoy, 44% qoq) and net income of Rs6.1 bn (92% qoq) against our estimate of
Rs46.2 bn, Rs12.3 bn and Rs6.5 bn, respectively. We note that all comparisons are on a like-forlike
basis (post-merger). Lower-than-estimated revenues were primarily on account of lower
volumes at 10.7 mn tons (against our estimate of 11 mn tons). EBITDA miss of 17% was on
account of (1) higher-than-estimated overhead costs at Rs8.3 bn against our estimate of Rs6.6 bn
and (2) higher-than-estimated raw material cost. Reported PAT was boosted by higher other
income and reversal of prior-period tax provisions of Rs1.2 bn. Adjusting for the tax reversal, PAT
at Rs6.1 bn was marginally lower than our estimate. Operating margins improved to 22.7% in
4QFY11 from 19.1% in 3QFY11, primarily driven by an improved pricing environment.
Strong revival in cement prices as ‘industry discipline’ sets in
Cement prices saw a strong revival in 4QFY11 with All-India average cement prices increasing by
Rs40-50/bag in the past few months. We note that the price increase has been broad-based,
starting from the South in the month of September and percolating to other regions in subsequent
months. The peak construction season has traditionally seen sustenance of a firm pricing trend
until the onset of monsoon. However, we remain watchful of the overall operating environment as
sluggish demand (industry volume growth of 4.6% YTD) coupled with rising inputs costs could
potentially dent the current discipline in the industry from 2QFY12E.
Reiterate BUY—attractive valuations at significant discount to peers
We reiterate our BUY rating on UTCEM with a revised target price of Rs1,350/share (previously
Rs1,250/share) as we roll forward to FY2013E based valuations. UTCEM is currently trading at
EV/ton of US$127/ton (32% discount to ACEM and 19% discount to ACC) and EV/EBTDA of 5.3X
(31% discount to ACEM and 31% discount to ACC) on FY2013E earnings. We have revised our
EPS estimates to Rs84/share in FY2012E (previously Rs91/share) and Rs103/share in FY2013E
(previously Rs114/share), adjusting for higher overhead costs.
Detailed analysis of quarterly results
We discuss below some key highlights of 4QFY11 results. We note that all yearly
comparisons are on a like-for-like basis by consolidating Grasim’s standalone cement results
for 4QFY10.
Volumes: Total volumes improved to 10.7 mn tons (4% yoy, 9.2% qoq) comprising 10.4
mn tons of domestic sales and 0.3 mn tons of clinker exports. The sequential increase is
reflective of seasonal uptick in demand.
Realization: Blended realizations increased to Rs4,196/ton in 4QFY11 (2.7% yoy, 10.7%
qoq) driven by strong sequential revival in cement prices across the country.
Power and fuel cost: UTCEM’s power and fuel cost decreased to Rs902/ton in 4QFY11
from Rs914/ton in 3QFY11. The decrease could likely be reflective of lower clinker
production during the quarter compensated by higher raw material cost. We expect the
full impact of CIL’s 30% price hike to flow in from 1QFY12E.
Freight cost: Freight cost increased to Rs767/ton in 4QFY11 from Rs743/ton in 3QFY11
likely on account of revision in railway freights effective during the quarter. We expect
further inflation in freight cost driven by likely hike in gasoline prices in the country.
Raw material cost: Raw material cost increased sharply to Rs555/ton in 4QFY11 from
Rs496/ton in 3QFY11.
Other income of Rs1.1 bn includes a sales tax reimbursement of Rs200 mn.
Reported PAT includes reversal of prior-period tax provisions of Rs1.2 bn.
Estimated capex of Rs13 bn in FY2011
UTCEM incurred an estimated capex of Rs13 bn during FY2011 primarily for its expansion
units at Chhattisgarh and Karnataka with a total capacity of 9.2 mtpa. Management has
guided for an additional capex of Rs110 bn in the next three years which would also include
capex on up gradation and modernization of existing plants, captive power units and a bulk
packaging terminal.
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