UltraTech Cement ( CMP Rs1,094, Neutral) : Motilal Oswal

Visit http://indiaer.blogspot.com/ for complete details �� ��

UltraTech Cement (UTCEM IN; Mkt Cap USD6.7b, CMP Rs1,094, Neutral)

UltraTech Cement's 2QFY11 results were below estimates with EBITDA margins of 12.7% (against our estimate of 15.6%) and PAT of Rs1.16b (against our estimate of Rs1.98b). Key highlights:

-     Results are not comparable YoY due to then merger of Samruddhi Cement. 1QFY11 are rebased to make them comparable.

-     On a like-to-like basis, volumes grew by 5% YoY (down 10% QoQ) to 9.2mt (against our estimate of 9.43mt). Grey cement realizations were Rs2,941/ton (down 12% QoQ, 18.5% YoY; against our estimate of Rs3,121/ton).

-     Sales were Rs32.1b (against our estimate of Rs34.1b) and PAT was Rs1.16b (against our estimate of Rs1.98b).

-     EBITDA was down by 59% QoQ at Rs4.08b (against our estimate of Rs5.3b), translating into EBITDA margins of 12.7% (down ~12.4pp QoQ; against our estimate of 15.6%) and EBITDA/ton was Rs443 (against our estimate of Rs556/ton).

-     The company completed the acquisition of the 3mt ETA Star Cement, UAE and will start consolidating it from 3QFY11.

Valuation and view: We have downgraded estimates by ~17.3% for FY11 to Rs43.6 and 10.7% for FY12 to Rs60.7, to factor in below estimate performance, volumes and cost push. The stock trades at 18x FY12E EPS to Rs60.7, 8.8x FY12E EV/EBITDA and US$130/ton. Downgrade to Neutral with a target price of Rs1,240 (~10x FY12E EV/EBITDA).