UltraTech Cement - Strong realisation growth leads to 16% PAT growth; Upgrade to 'BUY' - Karvy

UltraTech (UTCEM) delivered 16% YoY PAT growth to Rs 7.8 bn. EBITDA per MT rose to Rs 1,094. The strong profitability growth was driven by higher sequential realisation growth of 2% QoQ to Rs 4,260 per MT (Rs110 per MT higher than our est). The realisation grew ahead of operating cost during the quarter thereby boosting 120 bps QoQ margin expansions to 25.7%. Adjusted sales volume surged 7% YoY (down 8% QoQ) thereby clocking in ~84% plant utilisation (v/s 79% last year & 91% during Mar Qtr).

Operating costs remained stable – mostly in-line with our estimates (~2% higher than our expectations of Rs 3,104). Power & fuel cost moderated by 1% QoQ led by softening imported coal prices. Transportation cost rose 3% QoQ impacted by rail freight hike. EBITDA rose 8% YoY (down 1% QoQ) to Rs13.1 Bn (5% higher than our est). Subsequently, PAT grew 16% YoY.

Outlook positive on higher realisation and moderating fuel cost: We expect cement realisation to remain stable over the next two months and continue to trend upwards subsequently post the monsoon season. This should help UTCEM post 5-6% YoY realisation growth during FY13-14E period. Its volume growth should benefit from addition of 9.2 mn MT of new cement capacity during FY14E.

Imported coal prices have cooled off by 10-20% (on landed basis) over the last six months. Recently, RIL lowered pet coke prices by ~5% thereby benefitting UTCEM as it uses pet coke. Subsequently, we have raised our FY13-14E EBITDA estimates by ~8% respectively to factor in higher realisation growth and moderating fuel cost.

Upgrade to BUY: We value UTCEM at 9.5x its FY14E EBITDA (earlier 9.5x avg FY13-14E EBITDA) thereby implying a target price of Rs 1,810 per share. Our target price implies a replacement cost of US$ 161 per MT and discounts FY13E & FY14E EPS 19.1x and 18x respectively. Subsequently, we upgrade our rating to 'BUY' from 'HOLD'.

Source : Equity Bulls

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