29 January 2015

Expansions to keep growth on fast track… • UltraTech’s Q3FY15 update :: ICICI Securities, report

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Expansions to keep growth on fast track… • UltraTech’s Q3FY15 standalone revenue of | 5,489.9 crore was higher than our estimates (| 5250.4 crore) led by capacity expansion and additional volumes from the acquired unit in Gujarat. On a consolidated basis, its topline grew 13.6% YoY to | 5,834.6 crore • However, high power and additional cost relating to new plants put some pressure on margins. As a result, the EBITDA of | 749/tonne remained lower than our estimates (| 825/tonne) • The company’s ongoing capex is on track. During the quarter, the board approved the acquisition of the cement business of Jaiprakash Associates in Madhya Pradesh with capacity of 4.9 MT at an estimated EV of $135/tonne on extended capacity. With this new cement capacity along with 4.8 MT Jaypee unit, its capacity has reached 65.0MT, which is ahead of the capacity expansion target given by the company earlier Largest pan India player in cement industry UltraTech Cement is the largest player in terms of capacity (~65 MT including Jaypee plant) with a market share of over ~18% in India. The company has consistently remained ahead of its peers in terms of capacity expansion with a 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. The company has also approved acquisition of the 4.9 MT cement plants (in MP) of Jaiprakash Associates. Further, with the expansion projects under execution, the total capacity is set to increase 18% to ~71 MT (consolidated capacity at 74.5 MT) by FY16E while the industry capacity is expected to grow at a CAGR of 5% over the next three years. This, in turn, would help the company to further gain its leadership position, going forward. The total power capacity of the company (including WHRS) stands at 733 MW, which is around 80% of the company’s power requirement. 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 13.1% YoY. Further, given the likelihood of higher spending on infra development coupled with a rebound in economic growth, we expect a strong demand recovery over the next three years. 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, low debt/equity to fuel expansion The company is expected to generate over ~| 4200 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 to the balance sheet. This, in turn, will further strengthen the company’s position in the industry. Well positioned to reap benefits of recovery in demand!!! 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 16.5x and 12.6x EV/EBITDA for FY16E and FY17E, respectively, against last four year’s average valuations of 13.0x. We continue to maintain our previous target price of | 3240/share (i.e. at 13.0x FY17E EV/EBITDA and EV/tonne of $190/tonne).

LINK  http://content.icicidirect.com/mailimages/IDirect_UltraTechCement_Q3FY15.pdf

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