UltraTech Cement Limited - Short term pain, long term gain - Antique

UltraTech Cement Ltd. (UltraTech) reported 4QFY13 results which were marginally above our estimates at the revenue and EBIDTA level. The company reported revenues, EBIDTA and net profits of INR54.7bn, INR12.8bn and INR7.3bn against our estimates of INR54.5bn, INR12.5bn and INR7.45bn respectively. Reiterate BUY.

Results highlights

Lower volumes leads to muted revenue growth

Net sales rose by only 1.6% YoY to INR54.7bn, largely led by ~4.4% improvement in blended cement prices. On a QoQ basis, blended realisations were lower by ~1%. While domestic cement and clinker despatches declined by ~3.6% to ~10.9mmt, export volumes remained flat at ~0.2mmt. White cement and wall care putty volumes rose by 9.6% to 296kmt.

EBIDTA/mt almost flat on YoY basis at INR1,122

Despite negative volume growth, the company maintained its EBIDTA/mt at INR1,122 against INR1,117 as it benefited from firm cement prices and lower power and fuel costs. Accordingly, EBIDTA declined by 3% to INR12.8bn (our estimate of INR12.5bn). On a QoQ basis, EBIDTA/mt expanded by INR94 on account of lower power and fuel costs. A 31% decline in other income coupled with higher effective tax rate resulted in net profits declining by 16% to ~INR7.26bn (our estimate of INR7.46bn).

Update on capex plans

In 4QFY13, UltraTech commissioned 3.3mmt clinkerisation plant at Rawan (Chhattisgarh), 1.55mmt grinding unit at Hotgi (Maharashtra) and 0.6mmt grinding unit at Pipavav (Gujarat) taking its total cement capacity to 50.9mmt from 48.75mmt. The 3.3mmt clinker unit at Malkhed is on track to commission by 1QFY14e. The company also plans to augment the capacity at Aditya Cement Works in Rajasthan by 2.9mmt at an outlay of INR20bn.

Valuation and outlook

At the CMP of INR1,872, the stock trades at a PE and EV/EBIDTA of 14.9x and 8.3x, respectively, discounting its FY15e earnings. While the next two quarters are expected to be challenging on account of weak pricing environment, we believe that UltraTech is better placed to capitalise on post monsoon pick-up in demand on back of timely expansions. We reiterate our BUY recommendation with a target price of INR2098, valuing the company at 9.5x FY15e EBIDTA.

Source : Equity Bulls

Keywords