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Ultratech Cement Ltd
F2Q12: In-Line Quarter
We retain our EW rating on the stock: Ultratech
(UTCEM) reported QE Sep-11 PAT of Rs2.8bn, broadly
in line with our estimate but below consensus
expectation. The key negative surprise was a higher
than expected rise in other expenses and material costs,
which was offset by better realization.
Robust YoY growth on a weak base; sequentially,
earnings declined 60%: We cite lower realization and
volumes and higher than expected rise in other
expenses (seasonality). Freight and power costs
increased, but were in line with our estimate.
Revenues grew 22% YoY, supported by 20% gain in
realization (primarily given weak base): Volumes at
9.2mnt, grew 1% YoY (vs. industry growth of around
5-6%), implying market share loss. We expect volume
growth to recover in 2H12e and expect UTCEM to report
volumes marginally ahead of the industry.
Cost per ton increased by 17%, lagging price gains,
with 15-20% rise across key items: This led EBITDA
margins to improve 220bps YoY, to 15%, and 43%
growth in EBITDA. On a QoQ basis, margins declined
12ppt with a 7-8% drop in realization and higher costs.
Material costs rose (includes impact of higher freight
costs and fly ash prices) and other expenses rose
seasonally owing to higher maintenance cost.
Cost inflation a near-term risk to margins… UTCEM
and the cement industry currently face cost headwinds
from high coal prices, including potential availability risk
of domestic coal in the e-auction market. This could
result in a shift to imported coal, raising manufacturing
costs. In addition, Indian Railways recently announced a
15% freight hike, which too will result in higher freight
costs in QE Dec-11 and beyond.
…but the industry is likely to offset some of this
through price hikes: Based on dealer chats, we
believe that with price hikes taken in the month of
Sep-11, the industry generated higher EBITDA/T during
the month relative to average for the quarter.
While cost pressure has intensified since then, we expect the
industry to partly offset this through price hikes. More
importantly, national demand in F2H is seasonally robust. With
some moderation in the pace of new capacity additions, we
expect utilizations to improve on a sequential basis in F2H,
which will support price hikes.
Capacity expansion remains on track: UTCEM continues to
focus on brownfield capacity expansion of 9.2mnt at an
estimated cost of Rs110bn, which will be commissioned in
F1Q14.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ultratech Cement Ltd
F2Q12: In-Line Quarter
We retain our EW rating on the stock: Ultratech
(UTCEM) reported QE Sep-11 PAT of Rs2.8bn, broadly
in line with our estimate but below consensus
expectation. The key negative surprise was a higher
than expected rise in other expenses and material costs,
which was offset by better realization.
Robust YoY growth on a weak base; sequentially,
earnings declined 60%: We cite lower realization and
volumes and higher than expected rise in other
expenses (seasonality). Freight and power costs
increased, but were in line with our estimate.
Revenues grew 22% YoY, supported by 20% gain in
realization (primarily given weak base): Volumes at
9.2mnt, grew 1% YoY (vs. industry growth of around
5-6%), implying market share loss. We expect volume
growth to recover in 2H12e and expect UTCEM to report
volumes marginally ahead of the industry.
Cost per ton increased by 17%, lagging price gains,
with 15-20% rise across key items: This led EBITDA
margins to improve 220bps YoY, to 15%, and 43%
growth in EBITDA. On a QoQ basis, margins declined
12ppt with a 7-8% drop in realization and higher costs.
Material costs rose (includes impact of higher freight
costs and fly ash prices) and other expenses rose
seasonally owing to higher maintenance cost.
Cost inflation a near-term risk to margins… UTCEM
and the cement industry currently face cost headwinds
from high coal prices, including potential availability risk
of domestic coal in the e-auction market. This could
result in a shift to imported coal, raising manufacturing
costs. In addition, Indian Railways recently announced a
15% freight hike, which too will result in higher freight
costs in QE Dec-11 and beyond.
…but the industry is likely to offset some of this
through price hikes: Based on dealer chats, we
believe that with price hikes taken in the month of
Sep-11, the industry generated higher EBITDA/T during
the month relative to average for the quarter.
While cost pressure has intensified since then, we expect the
industry to partly offset this through price hikes. More
importantly, national demand in F2H is seasonally robust. With
some moderation in the pace of new capacity additions, we
expect utilizations to improve on a sequential basis in F2H,
which will support price hikes.
Capacity expansion remains on track: UTCEM continues to
focus on brownfield capacity expansion of 9.2mnt at an
estimated cost of Rs110bn, which will be commissioned in
F1Q14.
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