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2QFY12 results
A low base helped UltraTech’s net earnings which rose 140% YoY to Rs2.8bn
which was still lower than our estimates. While realisations came in-line, lower
than expected volumes and higher costs led to earnings disappointment. Despite
this, we raise our FY12 EPS estimates by ~7% thanks to recent price hikes which
have been well ahead of cost inflation, driven by producer discipline. We remain
concerned on sector fundamentals due to surplus capacity scenario and note that
prices (and margins) would continue to be highly volatile in coming quarters. U-PF.
2Q results lower than our estimates due to lower volumes, higher costs
UltraTech’s 2Q Ebitda rose 43% YoY to Rs5.8bn which was 20% lower than our
estimates. While cement realisations (Rs180/bag; -8% QoQ) were broadly in-line,
overall volumes (9.4mt; +2% YoY) were below estimates; unit costs rose 12% QoQ,
much ahead of our estimates leading to earnings disappointment. Ebitda/t at Rs615
was down 48% QoQ (+40% YoY). Lower interest and higher other income nonetheless
helped net earnings which rose 140% YoY to Rs2.8bn.
Channel checks indicate that current realisations should be >5% higher
Our recent channel checks indicate that cement prices across regions have moved up
by 2-10% in the last few weeks driven by seasonality as well as producer discipline.
Dealers expect prices to trend up in the coming weeks, particularly in north and central
region. We estimate UltraTech’s current realisations to be already higher by 5% from
2Q levels and revise up 2HFY12 realisations to Rs197/bag (+10% from 2Q).
… driving earnings upgrade by 2-7%
Higher realisations have driven a 7% upgrade to our earning estimates for FY12CL as
we expect Ebitda/t in 2H to average at Rs850/t (40% higher than 2Q levels). We
however marginally raise estimates for FY13-14CL by 2-3% as we expect cement
prices to remain volatile in the medium-term with a negative bias due to continued
excess capacity surpluses.
Weak industry utilisation, volatility in cement pricing remain our key concerns
Despite better than expected cement pricing, we are negative on our sector outlook as
well as on UltraTech for two reasons: a) sharp cost pressures have necessitated these
hikes which is evident from the fact that despite our assumption of all time high
realisation, UltraTech’s Ebitda/t is 12-15% lower than historical peak; b) hikes are
driven by producer discipline and are not underpinned by industry fundamentals –
cement prices (and margins) would remain highly volatile therefore.
Maintain U-PF; revised target: Rs1,000/sh (-11% downside)
We retain our U-PF rating on the stock as we find valuations (9x EV/Ebitda; US$130/t)
expensive in the context of industry fundamentals; revised target price Rs1,000/sh.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
2QFY12 results
A low base helped UltraTech’s net earnings which rose 140% YoY to Rs2.8bn
which was still lower than our estimates. While realisations came in-line, lower
than expected volumes and higher costs led to earnings disappointment. Despite
this, we raise our FY12 EPS estimates by ~7% thanks to recent price hikes which
have been well ahead of cost inflation, driven by producer discipline. We remain
concerned on sector fundamentals due to surplus capacity scenario and note that
prices (and margins) would continue to be highly volatile in coming quarters. U-PF.
2Q results lower than our estimates due to lower volumes, higher costs
UltraTech’s 2Q Ebitda rose 43% YoY to Rs5.8bn which was 20% lower than our
estimates. While cement realisations (Rs180/bag; -8% QoQ) were broadly in-line,
overall volumes (9.4mt; +2% YoY) were below estimates; unit costs rose 12% QoQ,
much ahead of our estimates leading to earnings disappointment. Ebitda/t at Rs615
was down 48% QoQ (+40% YoY). Lower interest and higher other income nonetheless
helped net earnings which rose 140% YoY to Rs2.8bn.
Channel checks indicate that current realisations should be >5% higher
Our recent channel checks indicate that cement prices across regions have moved up
by 2-10% in the last few weeks driven by seasonality as well as producer discipline.
Dealers expect prices to trend up in the coming weeks, particularly in north and central
region. We estimate UltraTech’s current realisations to be already higher by 5% from
2Q levels and revise up 2HFY12 realisations to Rs197/bag (+10% from 2Q).
… driving earnings upgrade by 2-7%
Higher realisations have driven a 7% upgrade to our earning estimates for FY12CL as
we expect Ebitda/t in 2H to average at Rs850/t (40% higher than 2Q levels). We
however marginally raise estimates for FY13-14CL by 2-3% as we expect cement
prices to remain volatile in the medium-term with a negative bias due to continued
excess capacity surpluses.
Weak industry utilisation, volatility in cement pricing remain our key concerns
Despite better than expected cement pricing, we are negative on our sector outlook as
well as on UltraTech for two reasons: a) sharp cost pressures have necessitated these
hikes which is evident from the fact that despite our assumption of all time high
realisation, UltraTech’s Ebitda/t is 12-15% lower than historical peak; b) hikes are
driven by producer discipline and are not underpinned by industry fundamentals –
cement prices (and margins) would remain highly volatile therefore.
Maintain U-PF; revised target: Rs1,000/sh (-11% downside)
We retain our U-PF rating on the stock as we find valuations (9x EV/Ebitda; US$130/t)
expensive in the context of industry fundamentals; revised target price Rs1,000/sh.
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