Goldman Sachs:: Ultratech Cement : In-line performance; balanced risk reward

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Ultratech Cement (ULTC.BO)
Neutral  Equity Research
In line with expectations: In-line performance; balanced risk reward
What surprised us
Ultratech reported 2QFY12 net income of Rs2.8 bn (+140% yoy, -59% qoq),
11% above our expectations, and 24% below Bloomberg consensus. The
top line was largely in line (4% ahead of estimates), primarily due to
better-than-expected realisations (up 13% yoy, down 6% qoq, 6% ahead of
estimates). At the operating level EBITDA came in at Rs6.5 bn (+49% yoy, -
47% qoq), 4% above our expectations.  As per the company, rising variable
and coal costs impacted performance during the quarter (energy costs
were up 13% yoy, staff costs were up 8% yoy and freight costs were up
15% yoy). The EBITDA margin contracted 1,140 bp sequentially, with
EBITDA/ton at Rs712 (GSe: Rs675) vs. 1QFY12 at Rs1,271/ton. The bottom
line beat was mainly driven by lower-than-expected interest expense (due
to some debt repayment) and higher-than-expected other income.
What to do with the stock
In our view, after recent outperformance in the stock, the risk-reward for
Ultratech looks balanced. While producer discipline has led to cement pricing
recovering post the seasonally weak period, overall demand growth still
remains muted. In the face of systemic overcapacity and muted demand, we
believe there are risks to producer discipline being sustained. In our view,
cement companies’ recovery in margins could be gradual. We revise our
FY12E-14E EPS by 0.4% to -9% to factor in higher costs. We maintain our
Neutral rating and round our 12-m EV/RC-based TP to Rs1,100 from RS1,097.
The stock trades at 12m fwd EV/RC of 100% in line with its 5-year historical
mean. Risks: Faster-than-expected pick up in demand, higher coal costs.