Buy Ultratech Cement: Angel Broking

Angel Broking has recommended buy rating on Ultratech Cement in its November 16, 2009 research reports.

“The board of Ultratech Cement (Ultratech) has approved the merger of Samruddhi Cement (Samruddhi) with itself. Samruddhi is the 65% subsidiary of Grasim Industries (Grasim). Grasim had transferred its cement business to Samruddhi in October 2009, while the shareholders of Grasim directly hold the remaining 35%. According to the merger plan, the shareholders of Samruddhi will get four shares of Ultratech of a face value of Rs10 each for every seven shares of a face value of Rs 5 each.”

“The merger is expected to be favourable for Ultratech, as it would become India's largest cement company. The company, which until now was concentrated in Western and Southern India, will achieve a pan-Indian presence. Moreover, the company's operating and return ratios are expected to improve going ahead, due to the superior operating parameters of Samruddhi's cement business. On the valuation front, we have valued Ultratech at an average of a Target EV/EBITDA of 6x and an EV/tonne of US $100, to arrive at a revised fair value of Rs 868 (Rs 880 earlier), which is at a discount to the target valuations of its peers like ACC (EV of US $105/tonne) and Gujarat Ambuja (EV of US $115/tonne). Hence, we recommend a Buy on the stock,” says Angel Broking research report.