Buy ULTRATECH CEMENT - Heralding a New Capex Phase - PINC Result Review

Heralding a New Capex Phase

UltraTech Cement's Q1FY11 results were above estimates with better realisations. Average realisations grew by 4.3% QoQ to Rs3.5k/mt. This improvement helped the company post an operating margin of 23.5% and an EBITDA/mt of Rs820 despite significant increase in power & fuel cost. However, on a YoY basis, margins declined by 1370bps while net profits declined 41.9% YoY to Rs2.4bn.

Outlook: During FY11 and FY12, we expect a 7% and 2.1% growth in sales volume to 21.6mn mt and 22.1mn mt respectively. Due to higher fuel and freight costs, we have reduced our FY11 margin estimates by 225bps to 24.5%. This has led to reduction in earnings estimate for FY11 and FY12 by ~7% to Rs79.5 and Rs87 respectively. The merger with Samruddhi Cement has been approved w.e.f 1st August 2010.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 5.2x FY12E EV/EBITDA. We re-iterate our 'BUY' recommendation with a price target of Rs1,082 discounting FY12E EBITDA 6.5x.

Source : Equity Bulls

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