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The FY11 annual report says the 100mmt capacity adds in the sector in recent years, plus
sluggish domestic demand and higher input prices make the short-term outlook bearish. The
balance sheet remains impressive with net-debt to equity of just 5%. We adjust earnings,
maintain Sell and raise our TP to Rs878.7.
2011 annual report clearly cautious in the medium term
UltraTech Cement management has highlighted the challenges facing the cement sector –
demand-supply mismatch, infrastructure bottlenecks and rising input costs and states that, due to
the 100mmt of capacity additions in the last few years, it has a bearish short-term outlook for the
sector. The company operated at 81% utilisation in FY11, and is raising its capacity in India by
9.2mmt from 49mmt, with new capacity expected to come on stream in FY14. Management
believes that, in the long term, cement demand in India will grow at 8.5% pa, given the
government focus on urban as well rural infrastructure development and housing.
We believe the industry surplus could go on for some time
Cement industry demand growth slipped from an already-reduced 5.5% in FY11 to just 1% yoy in
1QFY12 (quarter ending June 2011). However, the industry estimates growth of 4-5% for FY12,
assuming a post-monsoon season recovery in demand. We expect capacity additions of 20mmt
in FY12, which should take industry capacity to 325mmt, vs demand of 225mmt. We anticipate
that oversupply conditions will continue into next year, given our expectation that demand growth
will remain lower than trend (8-10%) in both FY11 and FY12. We thus expect cement margins to
remain at Rs800-900/mt for the next two years.
Maintain Sell, target price rises to Rs878.71
We have introduced FY14 EPS estimates at Rs75.9/share. UltraTech’s 1QFY12 earnings were
very strong, due to what we see as excellent cost management by the company, and largely good
pricing in the quarter. Cement prices slipped sharply towards the end of the quarter, which will
impact margins in the rest of FY12. The stock trades at US$128 EV/mt which is a 14% premium
to replacement cost.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The FY11 annual report says the 100mmt capacity adds in the sector in recent years, plus
sluggish domestic demand and higher input prices make the short-term outlook bearish. The
balance sheet remains impressive with net-debt to equity of just 5%. We adjust earnings,
maintain Sell and raise our TP to Rs878.7.
2011 annual report clearly cautious in the medium term
UltraTech Cement management has highlighted the challenges facing the cement sector –
demand-supply mismatch, infrastructure bottlenecks and rising input costs and states that, due to
the 100mmt of capacity additions in the last few years, it has a bearish short-term outlook for the
sector. The company operated at 81% utilisation in FY11, and is raising its capacity in India by
9.2mmt from 49mmt, with new capacity expected to come on stream in FY14. Management
believes that, in the long term, cement demand in India will grow at 8.5% pa, given the
government focus on urban as well rural infrastructure development and housing.
We believe the industry surplus could go on for some time
Cement industry demand growth slipped from an already-reduced 5.5% in FY11 to just 1% yoy in
1QFY12 (quarter ending June 2011). However, the industry estimates growth of 4-5% for FY12,
assuming a post-monsoon season recovery in demand. We expect capacity additions of 20mmt
in FY12, which should take industry capacity to 325mmt, vs demand of 225mmt. We anticipate
that oversupply conditions will continue into next year, given our expectation that demand growth
will remain lower than trend (8-10%) in both FY11 and FY12. We thus expect cement margins to
remain at Rs800-900/mt for the next two years.
Maintain Sell, target price rises to Rs878.71
We have introduced FY14 EPS estimates at Rs75.9/share. UltraTech’s 1QFY12 earnings were
very strong, due to what we see as excellent cost management by the company, and largely good
pricing in the quarter. Cement prices slipped sharply towards the end of the quarter, which will
impact margins in the rest of FY12. The stock trades at US$128 EV/mt which is a 14% premium
to replacement cost.
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