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ULTRATECH CEMENTS
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.1046
FY12E P/E: 14.6X
q We recently met with the management to discuss cement demand and
pricing scenario
q Company ideally positioned to benefit from improvement in cement
prices due to largest cement capacity
q We incorporate recent price hikes and marginally tweak our estimates
q We arrive at a revised price target of Rs 1046 (Rs.951 earlier) and change
our recommendation to ACCUMULATE on declines from REDUCE earlier.
Key highlights about the meeting
High sensitivity to cement prices; current scenario of improving
prices to benefit company positively
Ultratech Cements has emerged as the largest cement player post consolidation of
Samruddhi Cements with itself. Company has a total capacity of 51.75 MT with
48.75 MT in domestic and 3 MT from Star Cement. With a pan-India presence, we
expect company to benefit from pricing improvement across any location. Cement
prices have witnessed an improvement of nearly Rs 60-70 per bag during Q4FY11 till
date on account of supply discipline as well as on expectations of demand improvement. Our channel checks also indicate that prices may continue to remain high in
near future. We thus expect a significant improvement in average realizations on a
sequential basis
Cement demand growth lagged during FY11
Cement demand growth had lagged during FY11 till Feb, 2011 (4.7%) due to lack
of construction activity and issues related to sand availability. Lower than expected
demand coupled with incremental supplies had put pressure on the cement prices
during 9MFY11 but prices have now recovered on account of pricing discipline being
observed by cement players. We expect demand growth to recover during FY12 led
by government's initiative to boost infrastructure spending as well as rural spending.
Our estimates factor in demand to grow at a CAGR of 9.9% between FY11-FY13
Ultratech Cement's capex plan going ahead
Ultratech Cement's domestic capacity stands at 48.75 MT post merger of Samruddhi
cements. Acquisition of ETA Star Cement added another 3 MT, thereby taking its
total capacity to 51.75 MT. White Cement capacity stands at 560000 tpa. Company
is planning to expand its grey cement capacity by 4.8 MT at Raipur, Chattisgarh and
by 4.4 MT at Malkhed, Karnataka at a total cost of Rs 56 bn in next two years.
Along with this, it also plans to spend another Rs 46 bn for material evacuation and
logistic infrastructure, setting up of thermal power plants and waste heat recovery
systems as well as modernization and upgradation of existing projects. These new
capacities are likely to get operational by Q4FY13 or Q1FY14.
Incorporate recent price hikes in our estimates
We marginally tweak our estimates to incorporate the recent price hikes witnessed
across regions. We expect grey cement realizations to improve to nearly Rs 3600 per
tonne during Q4FY11 as against Rs 3279 per tonne during Q3FY11 and Rs 3021 per
tonne in Q2FY11. Thus, we expect grey cement realizations to average at nearly Rs
3455 per tonne for FY11.
We expect blended cement realizations (including white cement) to be Rs 3646 per
tonne and Rs 3898 per tonne for FY11 and FY12 respectively and thus expect revenues to grow to Rs 130 bn and Rs 167 bn in FY11 and FY12 respectively.
Financial outlook
n We expect grey cement dispatches of nearly 35.8MT and 42.9MT for FY11 and
FY12 respectively. Including revenues from white cement, wall care putty and
RMC, we expect overall revenues to be Rs 130 bn and Rs 167 bn in FY11 and
FY12 respectively.
n We expect costs to remain high going forward so improvement in realizations is
not likely to fully translate into improvement in operating margins. We thus expect operating margins to be 18.4% and 22.8% for FY11 and FY12 respectively.
n Volume growth in cement division and improvement in cement realizations is
likely to lead to net profits of Rs 10.8 bn and Rs 19.23 bn in FY11 and FY12 respectively
Valuation and recommendation
n At current price of Rs 1027, stock is trading at 14.6x P/E and 8.0x EV/EBITDA for
FY12.
n We marginally tweak our estimates and arrive at a revised price target of Rs
1046. (Rs 951 earlier) valued at 8.2x EV/EBIDTA on FY12 estimates.
n We upgrade the stock to ACCUMULATE from REDUCE earlier since cement realizations have firmed up. We thus advise investors to accumulate the stock on
declines.
n We believe that recent price hikes are likely to be positive for the company and
quarterly numbers can surprise positively on a sequential basis.
n Key risks to our recommendation would be steep increase in costs or sharp decline in cement prices from the current levels in near term
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ULTRATECH CEMENTS
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.1046
FY12E P/E: 14.6X
q We recently met with the management to discuss cement demand and
pricing scenario
q Company ideally positioned to benefit from improvement in cement
prices due to largest cement capacity
q We incorporate recent price hikes and marginally tweak our estimates
q We arrive at a revised price target of Rs 1046 (Rs.951 earlier) and change
our recommendation to ACCUMULATE on declines from REDUCE earlier.
Key highlights about the meeting
High sensitivity to cement prices; current scenario of improving
prices to benefit company positively
Ultratech Cements has emerged as the largest cement player post consolidation of
Samruddhi Cements with itself. Company has a total capacity of 51.75 MT with
48.75 MT in domestic and 3 MT from Star Cement. With a pan-India presence, we
expect company to benefit from pricing improvement across any location. Cement
prices have witnessed an improvement of nearly Rs 60-70 per bag during Q4FY11 till
date on account of supply discipline as well as on expectations of demand improvement. Our channel checks also indicate that prices may continue to remain high in
near future. We thus expect a significant improvement in average realizations on a
sequential basis
Cement demand growth lagged during FY11
Cement demand growth had lagged during FY11 till Feb, 2011 (4.7%) due to lack
of construction activity and issues related to sand availability. Lower than expected
demand coupled with incremental supplies had put pressure on the cement prices
during 9MFY11 but prices have now recovered on account of pricing discipline being
observed by cement players. We expect demand growth to recover during FY12 led
by government's initiative to boost infrastructure spending as well as rural spending.
Our estimates factor in demand to grow at a CAGR of 9.9% between FY11-FY13
Ultratech Cement's capex plan going ahead
Ultratech Cement's domestic capacity stands at 48.75 MT post merger of Samruddhi
cements. Acquisition of ETA Star Cement added another 3 MT, thereby taking its
total capacity to 51.75 MT. White Cement capacity stands at 560000 tpa. Company
is planning to expand its grey cement capacity by 4.8 MT at Raipur, Chattisgarh and
by 4.4 MT at Malkhed, Karnataka at a total cost of Rs 56 bn in next two years.
Along with this, it also plans to spend another Rs 46 bn for material evacuation and
logistic infrastructure, setting up of thermal power plants and waste heat recovery
systems as well as modernization and upgradation of existing projects. These new
capacities are likely to get operational by Q4FY13 or Q1FY14.
Incorporate recent price hikes in our estimates
We marginally tweak our estimates to incorporate the recent price hikes witnessed
across regions. We expect grey cement realizations to improve to nearly Rs 3600 per
tonne during Q4FY11 as against Rs 3279 per tonne during Q3FY11 and Rs 3021 per
tonne in Q2FY11. Thus, we expect grey cement realizations to average at nearly Rs
3455 per tonne for FY11.
We expect blended cement realizations (including white cement) to be Rs 3646 per
tonne and Rs 3898 per tonne for FY11 and FY12 respectively and thus expect revenues to grow to Rs 130 bn and Rs 167 bn in FY11 and FY12 respectively.
Financial outlook
n We expect grey cement dispatches of nearly 35.8MT and 42.9MT for FY11 and
FY12 respectively. Including revenues from white cement, wall care putty and
RMC, we expect overall revenues to be Rs 130 bn and Rs 167 bn in FY11 and
FY12 respectively.
n We expect costs to remain high going forward so improvement in realizations is
not likely to fully translate into improvement in operating margins. We thus expect operating margins to be 18.4% and 22.8% for FY11 and FY12 respectively.
n Volume growth in cement division and improvement in cement realizations is
likely to lead to net profits of Rs 10.8 bn and Rs 19.23 bn in FY11 and FY12 respectively
Valuation and recommendation
n At current price of Rs 1027, stock is trading at 14.6x P/E and 8.0x EV/EBITDA for
FY12.
n We marginally tweak our estimates and arrive at a revised price target of Rs
1046. (Rs 951 earlier) valued at 8.2x EV/EBIDTA on FY12 estimates.
n We upgrade the stock to ACCUMULATE from REDUCE earlier since cement realizations have firmed up. We thus advise investors to accumulate the stock on
declines.
n We believe that recent price hikes are likely to be positive for the company and
quarterly numbers can surprise positively on a sequential basis.
n Key risks to our recommendation would be steep increase in costs or sharp decline in cement prices from the current levels in near term
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