Maintain 'reduce' on Ultra Tech Cement – TP Rs.1211 - Geojit BNP Paribas Financial Services

- The company reported 1QFY13 EBITDA at Rs.1310 crore and recurring PAT of Rs.780 crore. Both numbers are slightly ahead of market expectations.

- Positive effects of higher than expected other income and lower than expected interest expenses have been countered to some extent by higher than expected tax rate.

- Average sales price (ASP) for the quarter at Rs.5029/ton increased 4% qoq and 11% yoy while operating costs at Rs.3749/ton increased 2%qoq and 14% yoy. Thus, higher costs balances out higher ASP and EBITDA at Rs.1296/ton increased 8% qoq and 2% yoy.

- Sales volume at 10.1 million tons is in line with market estimates.

- The stock appears expensive at the current rate of Rs.1560 range and maintains 'reduce' rating with a target price of Rs.1211 over one year.

- Full impact of volume growth from company's 10.2 million ton capacity expansion will be felt by FY15 and the near term earnings growth will continue to be driven by increase in cement prices.

- Seasonally, 2QFY13 is likely to see a decline in ASP and EBITDA /ton and it seems that yoy EBITDA/ton expansion for Ultratech and the sector would be difficult in FY13 with deficit monsoon, continuing over supply situation, cost inflation and the ongoing regulatory overhang.

- Key risks to the target price are higher than expected cement prices and better than expected utilization of new capacity expansion.

Source : Equity Bulls

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