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UBS Investment Research
UltraTech Cement
Star Cement profitability sub-par
[ EXTRACT]
Weakness in UAE market impacts Star Cement performance
Star Cement, UltraTech’s Middle East subsidiary, achieved break-even at the EBITDA
level in Q1 FY12. Volume growth was strong (capacity utilisation above 95%) and Star
Cement gained market share (to 14.3% from 12.8% in Q4 FY11), despite a 13%
decline in demand in the UAE. However, realisations were weak at US$42-53/t and
remain an area of concern. UltraTech acquired Star Cement, which has capacity of 3mt,
in FY11 at an EV of US$356m (implying a value of about US$120/t).
Working on other projects to consolidate position
UltraTech’s 9.2mt capacity expansion projects are scheduled to be commissioned in Q1
FY14. Project development is on track, equipment orders have been placed and the
likely cost is Rs52bn. The company targets an equity IRR of 16-18% for its capex
investments with a target debt/equity ratio of 1:1. It is ready to participate in inorganic
growth opportunities, but consolidation is not happening in the industry due to a
mismatch in price expectations of buyers and sellers. UltraTech is working on other
projects to consolidate its position in the industry.
Revise our earnings estimates
We raise our FY12/FY13 EPS estimates from Rs64.27/Rs80.86 to Rs74.25/Rs81.32,
led by changes to our volume and price realisation assumptions post the Q1 FY12
results.
Valuation: price target of Rs950 based on target EV/EBITDA multiple
We lower our price target from Rs1,020 to Rs950, as we now value UltraTech on a
target FY13E EV/EBITDA multiple of 6x (previously 6.5x). About 6% of UltraTech’s
capacity (total capacity of 52mt) is in Star Cement and profitability in the UAE market
is likely to remain weak near term.
UltraTech Cement
UltraTech Cement (UltraTech) was formed when the former cement division of
L&T was demerged and bought by Grasim Industries of the Aditya Birla Group.
Recently, Grasim's demerged cement business (Samruddhi Cement) merged
with UltraTech, making UltraTech the largest cement company in India with a
capacity of about 49mt, and the eighth largest cement company globally. It has a
total capacity of about 52mt, including 3mt of overseas capacity (in Bangladesh,
Bahrain and UAE). UltraTech is also a leader in cement value-added products
such as white cement, wall-care putty and ready-mix concrete.
Statement of Risk
We believe the key risk to our outlook for the sector could come from an
unexpected fall in cement prices, increase in input costs, such as coal/freight,
and any government intervention to lower cement prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
UltraTech Cement
Star Cement profitability sub-par
[ EXTRACT]
Weakness in UAE market impacts Star Cement performance
Star Cement, UltraTech’s Middle East subsidiary, achieved break-even at the EBITDA
level in Q1 FY12. Volume growth was strong (capacity utilisation above 95%) and Star
Cement gained market share (to 14.3% from 12.8% in Q4 FY11), despite a 13%
decline in demand in the UAE. However, realisations were weak at US$42-53/t and
remain an area of concern. UltraTech acquired Star Cement, which has capacity of 3mt,
in FY11 at an EV of US$356m (implying a value of about US$120/t).
Working on other projects to consolidate position
UltraTech’s 9.2mt capacity expansion projects are scheduled to be commissioned in Q1
FY14. Project development is on track, equipment orders have been placed and the
likely cost is Rs52bn. The company targets an equity IRR of 16-18% for its capex
investments with a target debt/equity ratio of 1:1. It is ready to participate in inorganic
growth opportunities, but consolidation is not happening in the industry due to a
mismatch in price expectations of buyers and sellers. UltraTech is working on other
projects to consolidate its position in the industry.
Revise our earnings estimates
We raise our FY12/FY13 EPS estimates from Rs64.27/Rs80.86 to Rs74.25/Rs81.32,
led by changes to our volume and price realisation assumptions post the Q1 FY12
results.
Valuation: price target of Rs950 based on target EV/EBITDA multiple
We lower our price target from Rs1,020 to Rs950, as we now value UltraTech on a
target FY13E EV/EBITDA multiple of 6x (previously 6.5x). About 6% of UltraTech’s
capacity (total capacity of 52mt) is in Star Cement and profitability in the UAE market
is likely to remain weak near term.
UltraTech Cement
UltraTech Cement (UltraTech) was formed when the former cement division of
L&T was demerged and bought by Grasim Industries of the Aditya Birla Group.
Recently, Grasim's demerged cement business (Samruddhi Cement) merged
with UltraTech, making UltraTech the largest cement company in India with a
capacity of about 49mt, and the eighth largest cement company globally. It has a
total capacity of about 52mt, including 3mt of overseas capacity (in Bangladesh,
Bahrain and UAE). UltraTech is also a leader in cement value-added products
such as white cement, wall-care putty and ready-mix concrete.
Statement of Risk
We believe the key risk to our outlook for the sector could come from an
unexpected fall in cement prices, increase in input costs, such as coal/freight,
and any government intervention to lower cement prices.
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