Motilal Oswal recommended buy rating on Ultratech Cement with a target price of Rs 936 in its research report dated July 14, 2017.
Motilal Oswal's research report on Ultratech Cement
UTCEM’s clinker capacity addition over the next two years (FY17 -19) would be similar to the clinker capacity added over the last six years (FY11- 17). The JPA acquisition has significantly reduced lead time for asset creation and market share enhancement. FY19E EV/tonne adjusted for JPA’s assets and Dhar expansion appears moderated by over 20%, implying reduction in the ~50% premium over peers’ EV/tonne to 25 -30%. UTCEM has achieved strong cost efficiency parameters in power & fuel and freight cost for standalone operations. We believe the cost curve for JPA would also improve meaningfully post takeover by UTCEM.Outlook
JPA’s acquisition is likely to result in PBT dilution of ~19% in FY18 and ~ 8% in FY19; we expect the acquired assets to break even in 1HFY20. While the earnings dilution is transitory, the asset creation is permanent and would add to UTCEM’s long -term competitive advantage. We reiterate Buy.
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