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Above estimates; higher realizations, lower cost drive profitability to near peak; upgrading estimates; Buy
UltraTech Cement's 1QFY12 results are above estimates with EBITDA/ton of INR1,190 (v/s est INR954/ton) and PAT of
INR6.8b (v/s est 5.2b), driven by higher realizations (+INR230/ton QoQ v/s est +INR40/ton QoQ).
Volumes at 9.86mt (-4% YoY, -9% QoQ; v/s est 9.75MT). Grey Cement realization's at INR3,763/ton (up 7% QoQ &
12% YoY; v/s est INR3,571/ton).Sales up 9% YoY (-3% QoQ) at INR43.7b (v/s est INR41.6b).
EBITDA at INR11.9b (v/s est INR9.4b), translating into EBITDA margins of 27.2% (+450bp QoQ; v/s est 22.7%) and
EBITDA/ton of INR1,190 (v/s est INR954/ton), driven by higher realizations and stable costs.
Cost was stable QoQ as higher energy cost (by INR80/ton) was off-set by savings in other expenses (by INR80/ton).
As a result, PAT grew by 22.5% YoY (-6% QoQ) to INR6.8b (v/s est INR5.2b).
Management expects surplus scenario to continue over next 2 to 3 years resulting in selling prices remaining under
pressure. With commodity prices rising, input costs will be affected, which will squeeze margins.
We model ~3% volume growth in FY12 and 12% in FY13. We estimate ~INR300/ton QoQ decline in realizations in
2QFY12, flat in 3QFY12 and ~INR8/bag QoQ improvement in 4QFY12, translating into ~INR16/bag improvement in
FY12. For FY13, we model in for INR10/bag higher realizations.
We are upgrading our EPS for FY12 by 12% to INR74.5 and FY13 by 9% to INR97.2, to factor in for higher realizations
and lower cost.
The stock trades at 13.8x FY12E EPS, 7.4x EV/EBITDA and US$128/ton. Maintain Buy with target price of INR1,385
(~10x FY12 EV/EBITDA).
Higher realizations drives revenues
Volumes at 9.86MT de-grew 4% YoY (9% QoQ) with domestic volumes de-growing
2% YoY and clinker exports de-growing 51% YoY.
Realization's at INR3,763/ton were higher by 7% QoQ & 12% YoY (v/s est INR3,571/
ton), benefiting from higher prices in its key market of South, improving segment mix
in favor of retail volumes and improvement in product mix (lower clinker sales).
RMC volumes were stable at 11.6 lac cu mtr. White Cement (including Wall care
putty) volumes were also stable at 195,000 tons.
On a like-to-like basis, sales grew by 9% YoY (-3% QoQ) at INR43.65b (v/s est
INR41.6b).
Higher realizations, stable costs boost EBITDA/ton to near peak
EBITDA at INR11.9b (v/s est INR9.4b), translating into EBITDA margins of 27.2%
(+450bp QoQ; v/s est 22.7%) and EBITDA/ton of INR1,190 (v/s est INR954/ton).
Cost was stable QoQ as higher energy cost (by INR80/ton) was off-set by savings in
other expenses (by INR80/ton). Energy cost reflected recent increase in linkage coal
price by Coal India and imported coal cost of USD140/ton, translating into energy cost
push of INR80/ton. However, lower other expenses by INR80/ton QoQ, off-set higher
energy cost, due to reduction in inter-unit clinker transfer (as demand was poor),
lower repairs and lower provisioning.
As a result, PAT grew by 22.5% YoY (-6% QoQ) to INR6.8b.
Short term outlook cautious, but maintains capex plans to invest INR110b
Management expects surplus scenario to continue over next 2 to 3 years resulting in
selling prices remaining under pressure. With commodity prices rising, input costs will
be affected, which will squeeze margins.
However, it is going ahead with capex plans of INR110b over next 3-4 years for
adding new capacities, logistic infrastructure and plant modernization.
It is setting-up 9.2MT capacity at Chhattisgarh and Karnataka, alongwith with split
grinding units and packaging terminals. This capacity would be operational in FY14.
This capex would be funded through mix of internal accruals and debt. It currently has
net debt-equity of 0.1x.
Upgrading estimates
We are upgrading our EPS for FY12 by 12% to INR74.5 and FY13 by 9% to INR97.2,
to model higher than estimated realizations and lower than estimated cost push.
We model ~3% volume growth in FY12 and 12% in FY13. We estimate ~INR300/ton
QoQ decline in realizations in 2QFY12, flat in 3QFY12 and ~INR8/bag QoQ
improvement in 4QFY12, translating into ~INR16/bag improvement in FY12. For FY13,
we model in for INR10/bag higher realizations.
Valuation and view
Cement industry would continue to be plagued by over-capacity atleast till Dec-11.
This coupled with seasonal demand would put pressure on cement prices in 1HF12.
We expect high volatility in cement prices and cement companies performance over
next 6-9 months.
However, we believe that we have already witnessed bottom-of-the-cycle utilization,
and it should gradually improve from hereon driven by presence of sustainable demand
drivers. Revival in cement demand, which we expect to improve from 2HFY12, would
be key catalyst for the stock performance.
UTCEM with 50MT capacity and pan-India presence is the best proxy on the Indian
cement industry.
The stock trades at 13.8x FY12E EPS, 7.4x EV/EBITDA and US$128/ton. Maintain
Buy with target price of INR1,385 (~10x FY12 EV/EBITDA).
Company description
UltraTech Cement, the erstwhile cement division of L&T
Ltd, is a subsidiary of Grasim, a part of the Aditya Birla
Group. Post merger of Grasim's cement business, it is the
largest cement company in India with a total cement
capacity of 50m ton with a pan-India presence. It is the
largest exporters of cement and clinker from India. Post
merger, it would be the largest cement company in India
and 10th largest in the world.
Key investment arguments
Largest cement company with pan-India presence.
Potential to increase throughput without incurring major
capex by increasing utilization and blending, along with
locational advantage, gives it the flexibility to either
export or sell in the domestic market.
Significant potential to increase throughput by increasing
blending.
Key investment risks
High operating leverage could result in volatile earnings.
Being largest exporter of cement, UltraTech's earnings
are sensitive to export realizations.
Valuation and view
The stock trades at 13.8x FY12E EPS, 7.4x EV/
EBITDA and US$128/ton.
Maintain Buy with target price of INR1,385 (~10x FY12
EV/EBITDA).
Sector view
Although sector would continue to be plagued by overcapacity
at least till Dec-11 and expect volatility in
cement prices and cement companies' performance
over next 6-9 months.
However, we believe we have already witnessed
bottom-of-the-cycle utilization & profitability, and it
should gradually improve hereon given sustainable
demand drivers.
Revival in cement demand, which we expect to improve
from 2HFY12, would be key catalyst for the stock
performance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Above estimates; higher realizations, lower cost drive profitability to near peak; upgrading estimates; Buy
UltraTech Cement's 1QFY12 results are above estimates with EBITDA/ton of INR1,190 (v/s est INR954/ton) and PAT of
INR6.8b (v/s est 5.2b), driven by higher realizations (+INR230/ton QoQ v/s est +INR40/ton QoQ).
Volumes at 9.86mt (-4% YoY, -9% QoQ; v/s est 9.75MT). Grey Cement realization's at INR3,763/ton (up 7% QoQ &
12% YoY; v/s est INR3,571/ton).Sales up 9% YoY (-3% QoQ) at INR43.7b (v/s est INR41.6b).
EBITDA at INR11.9b (v/s est INR9.4b), translating into EBITDA margins of 27.2% (+450bp QoQ; v/s est 22.7%) and
EBITDA/ton of INR1,190 (v/s est INR954/ton), driven by higher realizations and stable costs.
Cost was stable QoQ as higher energy cost (by INR80/ton) was off-set by savings in other expenses (by INR80/ton).
As a result, PAT grew by 22.5% YoY (-6% QoQ) to INR6.8b (v/s est INR5.2b).
Management expects surplus scenario to continue over next 2 to 3 years resulting in selling prices remaining under
pressure. With commodity prices rising, input costs will be affected, which will squeeze margins.
We model ~3% volume growth in FY12 and 12% in FY13. We estimate ~INR300/ton QoQ decline in realizations in
2QFY12, flat in 3QFY12 and ~INR8/bag QoQ improvement in 4QFY12, translating into ~INR16/bag improvement in
FY12. For FY13, we model in for INR10/bag higher realizations.
We are upgrading our EPS for FY12 by 12% to INR74.5 and FY13 by 9% to INR97.2, to factor in for higher realizations
and lower cost.
The stock trades at 13.8x FY12E EPS, 7.4x EV/EBITDA and US$128/ton. Maintain Buy with target price of INR1,385
(~10x FY12 EV/EBITDA).
Higher realizations drives revenues
Volumes at 9.86MT de-grew 4% YoY (9% QoQ) with domestic volumes de-growing
2% YoY and clinker exports de-growing 51% YoY.
Realization's at INR3,763/ton were higher by 7% QoQ & 12% YoY (v/s est INR3,571/
ton), benefiting from higher prices in its key market of South, improving segment mix
in favor of retail volumes and improvement in product mix (lower clinker sales).
RMC volumes were stable at 11.6 lac cu mtr. White Cement (including Wall care
putty) volumes were also stable at 195,000 tons.
On a like-to-like basis, sales grew by 9% YoY (-3% QoQ) at INR43.65b (v/s est
INR41.6b).
Higher realizations, stable costs boost EBITDA/ton to near peak
EBITDA at INR11.9b (v/s est INR9.4b), translating into EBITDA margins of 27.2%
(+450bp QoQ; v/s est 22.7%) and EBITDA/ton of INR1,190 (v/s est INR954/ton).
Cost was stable QoQ as higher energy cost (by INR80/ton) was off-set by savings in
other expenses (by INR80/ton). Energy cost reflected recent increase in linkage coal
price by Coal India and imported coal cost of USD140/ton, translating into energy cost
push of INR80/ton. However, lower other expenses by INR80/ton QoQ, off-set higher
energy cost, due to reduction in inter-unit clinker transfer (as demand was poor),
lower repairs and lower provisioning.
As a result, PAT grew by 22.5% YoY (-6% QoQ) to INR6.8b.
Short term outlook cautious, but maintains capex plans to invest INR110b
Management expects surplus scenario to continue over next 2 to 3 years resulting in
selling prices remaining under pressure. With commodity prices rising, input costs will
be affected, which will squeeze margins.
However, it is going ahead with capex plans of INR110b over next 3-4 years for
adding new capacities, logistic infrastructure and plant modernization.
It is setting-up 9.2MT capacity at Chhattisgarh and Karnataka, alongwith with split
grinding units and packaging terminals. This capacity would be operational in FY14.
This capex would be funded through mix of internal accruals and debt. It currently has
net debt-equity of 0.1x.
Upgrading estimates
We are upgrading our EPS for FY12 by 12% to INR74.5 and FY13 by 9% to INR97.2,
to model higher than estimated realizations and lower than estimated cost push.
We model ~3% volume growth in FY12 and 12% in FY13. We estimate ~INR300/ton
QoQ decline in realizations in 2QFY12, flat in 3QFY12 and ~INR8/bag QoQ
improvement in 4QFY12, translating into ~INR16/bag improvement in FY12. For FY13,
we model in for INR10/bag higher realizations.
Valuation and view
Cement industry would continue to be plagued by over-capacity atleast till Dec-11.
This coupled with seasonal demand would put pressure on cement prices in 1HF12.
We expect high volatility in cement prices and cement companies performance over
next 6-9 months.
However, we believe that we have already witnessed bottom-of-the-cycle utilization,
and it should gradually improve from hereon driven by presence of sustainable demand
drivers. Revival in cement demand, which we expect to improve from 2HFY12, would
be key catalyst for the stock performance.
UTCEM with 50MT capacity and pan-India presence is the best proxy on the Indian
cement industry.
The stock trades at 13.8x FY12E EPS, 7.4x EV/EBITDA and US$128/ton. Maintain
Buy with target price of INR1,385 (~10x FY12 EV/EBITDA).
Company description
UltraTech Cement, the erstwhile cement division of L&T
Ltd, is a subsidiary of Grasim, a part of the Aditya Birla
Group. Post merger of Grasim's cement business, it is the
largest cement company in India with a total cement
capacity of 50m ton with a pan-India presence. It is the
largest exporters of cement and clinker from India. Post
merger, it would be the largest cement company in India
and 10th largest in the world.
Key investment arguments
Largest cement company with pan-India presence.
Potential to increase throughput without incurring major
capex by increasing utilization and blending, along with
locational advantage, gives it the flexibility to either
export or sell in the domestic market.
Significant potential to increase throughput by increasing
blending.
Key investment risks
High operating leverage could result in volatile earnings.
Being largest exporter of cement, UltraTech's earnings
are sensitive to export realizations.
Valuation and view
The stock trades at 13.8x FY12E EPS, 7.4x EV/
EBITDA and US$128/ton.
Maintain Buy with target price of INR1,385 (~10x FY12
EV/EBITDA).
Sector view
Although sector would continue to be plagued by overcapacity
at least till Dec-11 and expect volatility in
cement prices and cement companies' performance
over next 6-9 months.
However, we believe we have already witnessed
bottom-of-the-cycle utilization & profitability, and it
should gradually improve hereon given sustainable
demand drivers.
Revival in cement demand, which we expect to improve
from 2HFY12, would be key catalyst for the stock
performance.
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