Earnings Update - Ultratech Cement (UTCEM IN) - Reasonably strong quarter, despite demonetization impacting demand - CSEC Research

- UTCEM posted a revenue de growth of 2%YoY to INR 55bn due to weak demand on account of demonetization. Domestic grey cement volumes witnessed a decline of 2% YoY to 11.4mt, while blended realizations declined by 1% YoY. Company's blended realizations (including RMC and white cement) during 3QFY17 stood at INR 4,860/tn as against INR 4,924/tn in 3QFY16.

- Total cost declined by 4.4% YoY to INR 44.9bn (Blended total cost/ton fell 3.8% YoY to INR 3833) on the back of efficiency enhancement.

- Raw material cost increase was only marginal by 0.5% YoY to INR 8.0bn (Blended Raw material cost/ton increased 2.3%YoY to INR 787) due to improved clinker cement conversion ratio and raw material mix optimization. Freight cost declined by 2.7% YoY to INR 13.6bn on the back of improved average lead distance (-3% YoY).

Valuation: At CMP the stock trades at consensus EV/EBITDA 19.5X and 16.2X FY17E&18E respectively. We assign a Marketperformer rating on the stock with a target price of INR 3504 based on EV/EBITDA multiple of 15X on FY2018 consensus estimates. Increased capacity coupled with higher capacity utilization (due to expected improvement in industry's demand-supply dynamics for the industry), development activities in AP & Telangana, steady cement prices and strong margins from Grey cement business augurs well for the company going ahead.

Risks: Slow demand recovery, Delay in execution of Government projects, any slowdown in urban real estate and increase in fuel prices, volatility in cement prices.

Shares of ULTRATECH CEMENT LTD. was last trading in BSE at Rs.3685.15 as compared to the previous close of Rs. 3681.5. The total number of shares traded during the day was 21234 in over 3672 trades.

The stock hit an intraday high of Rs. 3762.75 and intraday low of 3666.55. The net turnover during the day was Rs. 78724436.

Source : Equity Bulls

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