UltraTech Cement - Other income boosts net profit, downgrade to Reduce - Avendus

Other income boosts net profit, downgrade to Reduce

UTCEM's Mar12 EBITDA was 2.1% above estimates due to lower freight, and power and fuel costs. Revenues for 4QFY12 increased 16.8% q-o-q to INR53.4bn driven by an 18.7% growth in cement and clinker sales volumes. Blended EBITDA/tonne rose 10.6% q-o-q to INR1,070. Net profit went up 40.6% q-o-q to INR8.7bn due to higher other income. A lower-than-estimated rise in the input cost for 4QFY12 is likely to offset an increase in the input cost from Mar12. Hence, we maintain our EPS forecast for FY13f-FY14f. UTCEM plans to incur a capital expenditure of INR110bn to expand its cement capacity by 10.2mn tonnes by 1HFY14f. We raise our target price (TP) to INR1,287, following a rollover to Mar13 and downgrade the rating to Reduce.

Revenues increased 16.8% q-o-q, in line with estimates

Revenue for 4QFY12 went up 16.8% q-o-q to INR53.4bn, in line with our estimates, driven by higher sales volumes. The cement and clinker sales volume rose 18.7% q-o-q to 11.5mn tonnes, while the white cement and wall care putty sales volume increased 8.4% q-o-q to 0.27mn tonnes. Blended realizations declined 1.4% q-o-q to INR4,519/tonne. We forecast the cement sales volume to increase at a CAGR of 10% during FY13f-FY14f.

EBITDA rose 31% q-o-q to INR12.6bn

EBITDA increased 31% q-o-q to INR12.6bn, which was better than estimates, due to lower freight, and power and fuel costs. The blended EBITDA/tonne went up from INR968 in 3QFY12 to INR1,070 in 4QFY12. Freight, and power and fuel costs per tonne fell 2.2% and 10.1% q-o-q, respectively. A lower-thanestimated increase in the input cost in 4QFY12 is likely to offset a rise in railway freight by 20% from Mar12 along with an increase in imported coal prices due to the depreciation of the INR. We maintain our EBITDA estimates for FY13f-FY14f.

Other income boosts net profit, expansion on schedule

Net profit increased 40.6% q-o-q to INR8.7bn, against our estimate of INR7.2bn, boosted by higher other income. Other income rose 29.6% q-o-q to INR2bn due to one-time capital gains on fixed maturity plans. The tax/PBT for 4QFY12 at 26% was lower than estimates due to a reduced tax outgo on other income. We maintain our tax/PBT for FY13f-FY14f at 32%. UTCEM plans to expand its cement capacity by 10.2mn tonnes, which is progressing on schedule and is likely to be operational by 1QFY14f.

Downgrade rating to Reduce with a Mar13 TP of INR1,287

We maintain our EPS forecast for FY13f-FY14f as the lower-than-estimated increase in the input cost for 4QFY12 is likely to be offset by an expected rise in costs from Mar12. We value UTCEM at its historical average (Apr09-Apr12) P/E of 12.5x and at an industry average EV/tonne of INR5,867. We raise our TP to INR1,287, following a rollover to Mar13, and downgrade our rating to Reduce. Risk factors are a decline in cement prices, lower-than-estimated increase in volumes, and rise in freight as well as power and fuel costs.

Risk factors

- A decline in cement prices and sales volumes could adversely affect revenue and profitability

- An increase in the freight cost due to a rise in railway freight rates or diesel prices could exert pressure on margins

- A rise in imported coal prices could adversely affect the EBITDA margin.

Source : Equity Bulls

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