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UltraTech Cement (UTCEM)
Cement
2QFY12: Profitability reflective of seasonal vagaries. UltraTech (UTCEM) reported
2QFY12 net income of Rs2.8 bn, marginally ahead of our estimates but significantly
below Street expectations. Seasonal impact of low volumes and weak pricing implied
drop in profitability to Rs628/ton (-48% qoq, +40% yoy), though we expect recent
price increases and better volumes post-monsoon to help alleviate operating profits.
Maintain ADD rating with target price of Rs1,220/share; UTCEM trades at 6.5X
EV/EBITDA on FY2013E, 20% discount to ACC and Ambuja Cement.
Net income marginally ahead of estimate on higher other income
UTCEM reported revenues of Rs39.1 bn (22% yoy, -10% qoq), operating profits of Rs5.8 bn (43%
yoy, -51% qoq) and net income of Rs2.8 bn (141% yoy, -59% qoq) against our estimate of
Rs39.5 bn, Rs6.2 bn and Rs2.6 bn, respectively. Lower-than-estimated volumes (9.3 mn tons
versus estimated 9.5 mn tons) and higher overhead expenses dented the benefits of better
realizations (2% above estimate) leading to a 6% miss in operating profits. Higher other income,
however, absorbed the miss at operating level resulting in a beat at net income. We discuss the
result in detail in the subsequent section.
Realizations dip sequentially on seasonal weakness in prices
UTCEM’s average realization decreased 6% qoq (~Rs13/bag) on account of pricing weakness in
July and August. Cement prices on an average declined by Rs14-15/bag sequentially, typical of the
weakness witnessed in the monsoons. Our channel checks, however, indicate some revival in
cement prices in several pockets—especially those of West and North India. Further, prices in
South India (~25% of UTCEM sales) remained stable at Rs275-280/bag levels through the quarter
despite sluggish demand and low utilization rates.
Operating environment remains challenging—weak demand could weigh
Challenging operating environment driven by subdued demand could weigh on the already fragile
demand-supply balance and test the market discipline that has allowed for continued pricing
discipline. We note that recent agitations in Andhra Pradesh will further strain the demand
environment in South India and chances of a potential revival in 2HFY12E. However, the
unrelenting cost pressures from higher fuel and freight cost have likely been absorbed and may
stabilize at current levels.
Maintain ADD with a target price of Rs1,220/share
We maintain our ADD rating on UTCEM with a target price of Rs1,220/share and note that
UTCEM continues to trade at discounted valuation as compared to peers.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UltraTech Cement (UTCEM)
Cement
2QFY12: Profitability reflective of seasonal vagaries. UltraTech (UTCEM) reported
2QFY12 net income of Rs2.8 bn, marginally ahead of our estimates but significantly
below Street expectations. Seasonal impact of low volumes and weak pricing implied
drop in profitability to Rs628/ton (-48% qoq, +40% yoy), though we expect recent
price increases and better volumes post-monsoon to help alleviate operating profits.
Maintain ADD rating with target price of Rs1,220/share; UTCEM trades at 6.5X
EV/EBITDA on FY2013E, 20% discount to ACC and Ambuja Cement.
Net income marginally ahead of estimate on higher other income
UTCEM reported revenues of Rs39.1 bn (22% yoy, -10% qoq), operating profits of Rs5.8 bn (43%
yoy, -51% qoq) and net income of Rs2.8 bn (141% yoy, -59% qoq) against our estimate of
Rs39.5 bn, Rs6.2 bn and Rs2.6 bn, respectively. Lower-than-estimated volumes (9.3 mn tons
versus estimated 9.5 mn tons) and higher overhead expenses dented the benefits of better
realizations (2% above estimate) leading to a 6% miss in operating profits. Higher other income,
however, absorbed the miss at operating level resulting in a beat at net income. We discuss the
result in detail in the subsequent section.
Realizations dip sequentially on seasonal weakness in prices
UTCEM’s average realization decreased 6% qoq (~Rs13/bag) on account of pricing weakness in
July and August. Cement prices on an average declined by Rs14-15/bag sequentially, typical of the
weakness witnessed in the monsoons. Our channel checks, however, indicate some revival in
cement prices in several pockets—especially those of West and North India. Further, prices in
South India (~25% of UTCEM sales) remained stable at Rs275-280/bag levels through the quarter
despite sluggish demand and low utilization rates.
Operating environment remains challenging—weak demand could weigh
Challenging operating environment driven by subdued demand could weigh on the already fragile
demand-supply balance and test the market discipline that has allowed for continued pricing
discipline. We note that recent agitations in Andhra Pradesh will further strain the demand
environment in South India and chances of a potential revival in 2HFY12E. However, the
unrelenting cost pressures from higher fuel and freight cost have likely been absorbed and may
stabilize at current levels.
Maintain ADD with a target price of Rs1,220/share
We maintain our ADD rating on UTCEM with a target price of Rs1,220/share and note that
UTCEM continues to trade at discounted valuation as compared to peers.
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