UltraTech Cement - Subdued quarter; expansions to drive growth; Buy - Anand Rathi

Average realization down 5% yoy. At Rs. 4,737 a ton, Ultratech's 2Q average realization was down 5% yoy (1% qoq). At 9.5m tons, volumes (grey & white cement, clinker, wall putty) rose 0.5% yoy (down 8% qoq), in line with our estimate. Grey cement sales were up 1% yoy (down 9% qoq), those of white cement (including wall putty) were up 15% yoy. RMC revenue was Rs. 4.5bn (down 10% yoy); that of white cement and wall putty, Rs. 3.8bn (up 27% yoy).

EBITDA/ton, at Rs. 695. Led by more-than-expected costs, EBITDA/ton was Rs. 695 (Rs. 1,063 yoy, Rs. 1,015 qoq), vs Rs. 765 expected. Price hikes in diesel and railway freight chiefly resulted in a 7% yoy rise in freight cost. The benefit of lower coal prices (net of rupee devaluation) and optimisation of the fuel mix led to a 10% yoy dip in power & fuel costs a ton. A 34% yoy drop in EBITDA and a 48% yoy rise in interest led to a 52% yoy fall in PAT.

Other updates. UltraTech expects long-term cement demand to grow more than 8%; in FY14 it would tend toward 5%. In Jul'13 it commissioned a 3.3m-ton clinker plant in Karnataka, adding to its earlier commissioning (Mar'13) of similar capacity in Chhattisgarh. In Oct'13 it commissioned a 1.6m-ton grinding unit in Jharsuguda, Orissa, adding to its earlier commissioning (Mar'13) of similar capacity in Hotgi, Maharashtra. The balance five associated grinding units will be set up in 2HFY14 and FY15.

Acquisition. During 2Q, Ultratech acquired JPA's 4.8m-ton unit in Gujarat, lifting its capacity to 59m tons, while ongoing expansions would further that to 70m tons by Mar'15. The transaction, at an EV of Rs. 38bn (US$125 a ton) is expected to be completed only by 1QFY15 given multiple approvals required.

Our take. UltraTech's 2Q profit belied our estimate. Its all-India operations, those in the fast-growing businesses (white cement, wall putty) and capacity expansions are fundamental positives. We maintain a Buy, with a target of Rs. 2,170, based on 12x FY15e EV/EBITDA, an EV/ton of US$165 and a PE of 23x. Risks. Demand slowdown, cement-price declines.

Source : Equity Bulls

Keywords