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UltraTech Cement Ltd Neutral
ULTC.BO, UTCEM IN
Strong 1Q as South exposure helps; cost pressures to
increase
UTCEM reported very strong 1Q FY12 earnings, with EBITDA/MT
increasing 22% q/q. We believe South exposure combined with lower
costs (we believe full pass through of higher coal has not yet taken place)
drove the earnings beat.
Lower costs drove earnings beat: UltraTech Cement (UTCEM)
reported very strong 1Q FY12 EBITDA and PAT, which comfortably
beat consensus and JPM estimates. EBITDA was Rs12.3B (+13% q/q)
vs BBRG consensus at Rs9.46B and JPMe of Rs10.1B, while PAT came
in at Rs6.8B (-6% q/q) vs BBRG and JPMe of Rs5.2B. While ASPs
were broadly in-line, the earnings beat was driven by lower expenditure,
with ‘other expenditure’ declining by Rs1B q/q (-12% q/q). Total
operating costs/MT stood at Rs3161/MT vs JPMe of Rs3343/MT, as
freight costs/MT were also lower other than our estimates. EBITDA/MT
stood at Rs1221/MT (+22% q/q), the highest level since 1Q FY10.
South India exposure – A blessing in disguise? Much has been made
of the weaker demand in South India and the sharply lower
consolidation. However, cement prices have been remarkably resilient in
South India over the past few months, even as pricing pressure has
picked up in North and West India over the past 2-3 months. We believe
UTCEM, which has the highest South exposure among the Big 3 (ACC,
UTCEM, and ACEM) has benefited from this.
Costs should increase from here: We believe the lower operating costs
were also a function of the recent increase in coal prices not yet having
seen a full pass through. Given recent fuel price increases and cement
price declines, we expect EBITDA/MT to decline from current levels.
Remain Neutral given weak demand environment: We remain
Neutral and maintain our Mar-12 PT of Rs1,150 based on $130/MT
FY13E EV/MT. Key risks include a sharp decline in cement prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UltraTech Cement Ltd Neutral
ULTC.BO, UTCEM IN
Strong 1Q as South exposure helps; cost pressures to
increase
UTCEM reported very strong 1Q FY12 earnings, with EBITDA/MT
increasing 22% q/q. We believe South exposure combined with lower
costs (we believe full pass through of higher coal has not yet taken place)
drove the earnings beat.
Lower costs drove earnings beat: UltraTech Cement (UTCEM)
reported very strong 1Q FY12 EBITDA and PAT, which comfortably
beat consensus and JPM estimates. EBITDA was Rs12.3B (+13% q/q)
vs BBRG consensus at Rs9.46B and JPMe of Rs10.1B, while PAT came
in at Rs6.8B (-6% q/q) vs BBRG and JPMe of Rs5.2B. While ASPs
were broadly in-line, the earnings beat was driven by lower expenditure,
with ‘other expenditure’ declining by Rs1B q/q (-12% q/q). Total
operating costs/MT stood at Rs3161/MT vs JPMe of Rs3343/MT, as
freight costs/MT were also lower other than our estimates. EBITDA/MT
stood at Rs1221/MT (+22% q/q), the highest level since 1Q FY10.
South India exposure – A blessing in disguise? Much has been made
of the weaker demand in South India and the sharply lower
consolidation. However, cement prices have been remarkably resilient in
South India over the past few months, even as pricing pressure has
picked up in North and West India over the past 2-3 months. We believe
UTCEM, which has the highest South exposure among the Big 3 (ACC,
UTCEM, and ACEM) has benefited from this.
Costs should increase from here: We believe the lower operating costs
were also a function of the recent increase in coal prices not yet having
seen a full pass through. Given recent fuel price increases and cement
price declines, we expect EBITDA/MT to decline from current levels.
Remain Neutral given weak demand environment: We remain
Neutral and maintain our Mar-12 PT of Rs1,150 based on $130/MT
FY13E EV/MT. Key risks include a sharp decline in cement prices.
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