Strong volumes to keep growth on fast track… • UltraTech -BUY :: ICICI Securities, PDF link

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Strong volumes to keep growth on fast track…
• UltraTech’s Q2FY15 standalone revenue of | 5,381.8 crore remained
higher than our estimates (| 5190.5 crore) led by strong volumes and
better realisation. On consolidated basis, its topline grew by 18% YoY to
|5,723 crore led by capacity expansion and additional volumes from
acquired unit in Gujarat. However, high input cost and additional cost
relating newly plant put some pressure on margins.
• As a result, EBITDA of | 779/tonne remained lower than our estimates (|
859/tonne). However, it was higher by 10.7% YoY on account of better
realisations.
• The company’s on going capex are on track. During the quarter,
company commissioned 1.4MT cement mill at Karnataka and 25MW
power plant at AP. With this new cement capacity along with 4.8MT
Jaypee unit, its capacity has reached 60.2MT which is inline with our
capacity expansion target.
Largest pan India player in cement industry
UltraTech Cement is the largest player in terms of capacity (60.2 MT
including Jaypee plant) with market share of ~17% in India. The company
has consistently remained ahead of its peers in terms of capacity expansion
with CAGR of 23% vs. peer’s CAGR of 13% over the past five years. During
the quarter, UltraTech included earnings from the recently acquired Jaypee
Cement Corporation Ltd from June 12, 2014. Other than that, the company
has commissioned a 25 MW thermal power plant at Andhra Pradesh and
6.5MW waste heat recovery system at Awarpur, Maharashtra. With this, the
total power capacity of the company (including WHRS) stands at 733 MW,
which is around 80% of the company’s power requirement. Further, the
company is aiming to reach its total capacity of 70 MT by FY16E, which we
believe would help it to maintain its leadership, going forward.
To benefit from strong recovery in demand due to pan-India exposure
We expect the company to grow at a higher rate than the industry in the
coming years led by capacity expansion. The same has also been reflected
in the current quarter result with volume growth of 13.6% YoY. Further,
given the likelihood of higher spending on infra development coupled with a
rebound in economic growth, we expect a strong demand recovery from
H2FY15E onwards. UltraTech, being the largest pan-India player, would be
one of the major beneficiaries of a demand recovery with a stronger
presence in the western and northern regions.
Healthy operating cash flow and low debt/equity to fuel expansion
The company is expected to generate over ~| 3200 crore of operating cash
flows annually during FY15-17E. Further, considering the strong balance
sheet of the company with minimal debt (D/E of 0.3:1), we believe, the
expansion plan will not add any stress on the balance sheet. This, in turn,
will further strengthen the company’s position in the industry.
Warrants premium valuations to capture long-term potential!!!
Being a net debt free company, UltraTech is well positioned to reap the
benefit of a recovery in demand and generate healthy free cash flows in
future. The stock is currently trading at 12.3x and 9.3x EV/EBITDA for FY16E
and FY17E, respectively, against last four year’s average valuations of 13.0x.
We value the stock at 12.0x its FY17E thereby arriving at a target price of
| 3180 with BUY rating on the stock.

LINK
http://content.icicidirect.com/mailimages/IDirect_UltraTechCement_Q2FY15.pdf