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Ultratech's better than expected EBITDA at Rs11.88bn in 1QFY12, was driven by 6.6% qoq
higher realisations, and flat overall costs. Improved efficiency in raw material consumption offset
higher fuel costs. Cement prices have slipped in 2QFY12, and demand supply balance remains
adverse. We remain cautious.
EBITDA margins scale to peak levels
Ultratech has reported a EBITDA of Rs11.88bn as compared to Rs10.86bn in 1QFY11, and
Rs10.2bn in 4QFY11. Cement volumes at 9.46mmt was lower than 9.61mmt recorded in
1QFY11.
Despite lower volumes, revenues were higher by 10% at Rs43.65bn due to higher realiations
on a y.oy basis and q.o.q basis. It average cement realisations improved by 6.6% on a q.o.q
basis driven by better pricing conditions in April and May 2011. Significant improvement in
prices in the Southern region where Ultratech sells around 30% of volumes has driven strong
y.o.y realisation improvement
Despite rise in coal prices by 30% from Q4FY11 levels, Ultratech's overall costs have
remained stable on a q.o.q basis. This we believe is due to improved efficiency in raw
material consumption, where company has optimised costs tracking the lower utilisation rates.
Raw material cost as a percentage of net sales reduced by 254bps qoq from 14.08% in 4Q11
to 11.5% in 1Q12. Other expenditure as a percentage of sales reduced by 292bps qoq to
15.7% in 1Q12. However the power and fuel cost increased to 23.8% of sales in 1Q12
compared to 21.5% in 4Q11.
Ultratech has reported a EBITDA/mt of Rs1255/mt which is the highest levels seen in recent
years.
Profits could come under pressure in rest of the year
In Q1FY12, cement prices in many parts of India scaled new highs, particularly in South India.
However, the demand conditions remains weak, with just 2-3% growth for top companies in
Q1FY12.
The industry is currently operating at utilisation rate of around 76%, which exposes the sector
to competitive pricing.
While, pricing was particularly strong upto May 2011, there has been signficant price declines
in many markets particularly Gujarat, Central India.
We hence foresee a sharp correction in the EBITDA/mt in 2QFY12, and see risks to pricing in
the 4-6 quarters.
Ultratech to sustain its leadership position
UltraTech Cement currently has a market share of 17% in terms of cement capacity, and to
sustain this level of market share it plans to add 25mmt of capacity over the next 5 years. It
has already started work on 9.2mmt of capacity expansion at its existing locations at
Chhattisgarh and Karnataka along with captive power capacity. This is being undertaken with
a capital cost of Rs56bn. In order to strengthen its cost competitiveness, it is investing in
setting up additional captive power capacity of 170MW and waste heat recovery system of
45MW.
Management expects the oversupply scenario to persist for next 2-3 years. This will lead to
pressure on realisations, which along with rising input prices will put pressure on margins.
The stronger than expected 1QFY12 EBITDA, coupled with Rs1.25bn tax credit relating to
earlier years, has boosted its EPS for 1QFY12 to Rs24.9/share. We believe there would be
upgrades to our and consensus EPS estimates for FY12. However, the stock trades at
US$138 EV/mt which is a 20% premium to replacement cost, and given our cautious view on
cement pricing over the next 2 years, we maintain our Sell recommendation
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ultratech's better than expected EBITDA at Rs11.88bn in 1QFY12, was driven by 6.6% qoq
higher realisations, and flat overall costs. Improved efficiency in raw material consumption offset
higher fuel costs. Cement prices have slipped in 2QFY12, and demand supply balance remains
adverse. We remain cautious.
EBITDA margins scale to peak levels
Ultratech has reported a EBITDA of Rs11.88bn as compared to Rs10.86bn in 1QFY11, and
Rs10.2bn in 4QFY11. Cement volumes at 9.46mmt was lower than 9.61mmt recorded in
1QFY11.
Despite lower volumes, revenues were higher by 10% at Rs43.65bn due to higher realiations
on a y.oy basis and q.o.q basis. It average cement realisations improved by 6.6% on a q.o.q
basis driven by better pricing conditions in April and May 2011. Significant improvement in
prices in the Southern region where Ultratech sells around 30% of volumes has driven strong
y.o.y realisation improvement
Despite rise in coal prices by 30% from Q4FY11 levels, Ultratech's overall costs have
remained stable on a q.o.q basis. This we believe is due to improved efficiency in raw
material consumption, where company has optimised costs tracking the lower utilisation rates.
Raw material cost as a percentage of net sales reduced by 254bps qoq from 14.08% in 4Q11
to 11.5% in 1Q12. Other expenditure as a percentage of sales reduced by 292bps qoq to
15.7% in 1Q12. However the power and fuel cost increased to 23.8% of sales in 1Q12
compared to 21.5% in 4Q11.
Ultratech has reported a EBITDA/mt of Rs1255/mt which is the highest levels seen in recent
years.
Profits could come under pressure in rest of the year
In Q1FY12, cement prices in many parts of India scaled new highs, particularly in South India.
However, the demand conditions remains weak, with just 2-3% growth for top companies in
Q1FY12.
The industry is currently operating at utilisation rate of around 76%, which exposes the sector
to competitive pricing.
While, pricing was particularly strong upto May 2011, there has been signficant price declines
in many markets particularly Gujarat, Central India.
We hence foresee a sharp correction in the EBITDA/mt in 2QFY12, and see risks to pricing in
the 4-6 quarters.
Ultratech to sustain its leadership position
UltraTech Cement currently has a market share of 17% in terms of cement capacity, and to
sustain this level of market share it plans to add 25mmt of capacity over the next 5 years. It
has already started work on 9.2mmt of capacity expansion at its existing locations at
Chhattisgarh and Karnataka along with captive power capacity. This is being undertaken with
a capital cost of Rs56bn. In order to strengthen its cost competitiveness, it is investing in
setting up additional captive power capacity of 170MW and waste heat recovery system of
45MW.
Management expects the oversupply scenario to persist for next 2-3 years. This will lead to
pressure on realisations, which along with rising input prices will put pressure on margins.
The stronger than expected 1QFY12 EBITDA, coupled with Rs1.25bn tax credit relating to
earlier years, has boosted its EPS for 1QFY12 to Rs24.9/share. We believe there would be
upgrades to our and consensus EPS estimates for FY12. However, the stock trades at
US$138 EV/mt which is a 20% premium to replacement cost, and given our cautious view on
cement pricing over the next 2 years, we maintain our Sell recommendation
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