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Research
UltraTech Cement - Cement Sector Update - Karvy
Posted On : 2013-12-29 20:14:11( TIMEZONE : IST )
Strong brand premium & operational efficiency drives its industry leading profitability: Over the last 4 quarters, UltraTech's EBITDA growth has been consistently ahead of the industry average as well as its peers ACC & Ambuja. It has also led the industry and its peers on PAT growth during most of the quarters in last 3 years. This could be attributed to UltraTech increased focus on improving its operational efficiency while its sale volume growth has lagged both the industry as well as its large cap peers over the last 10 quarters. Its cement realization growth has been ahead of industry as well its peers. Additionally, UltraTech has also been increasing the usage of low cost pet-coke in its fuel mix thereby moderating the cost pressure. Further operational efficiency emanates from the various on-going logistics de-bottlenecking drive by the company.
UltraTech would continue to lose market share in FY14E on capacity delay: With the overall slowdown in demand, UltraTech has delayed its split grinding units around its recently commissioned clinker plants in Chhattisgarh & Karnataka by about 6-9 months till upto mid-FY15. Earlier, the complete expansion of 10 mn MT was expected to get commissioned by mid FY14E. Hence, we have cut our sales volume estimates for FY14E/15E by 6% and 9% respectively. We now factor in 2% YoY volume decline in FY14E and 11% volume growth in FY15E driven by its new capacity ramp-up.
We factor in 12% EBITDA CAGR during FY13-15E: Driven by lower volume estimates for FY14E/15E, we cut our EBITDA estimates for FY14E/15E by 9%/8% respectively. However, we expect it to deliver EBITDA CAGR of 12% over the next two years on account of its cost efficiency and strong market positioning. With its new clinker units already being operational, UltraTech is well positioned to exploit any demand improvement going forward.
Valuation & Recommendation: UltraTech should deliver ~19% RoE during FY14-15E – similar to that in its preceding 3 years. We maintain our "BUY" recommendation on the stock with a TP of Rs2,042 valuing it at 9.3x its FY15E EBITDA. We advise BUY on dips.
