Buy UltraTech Cement; target of Rs 1317: PINC Research

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Buy UltraTech Cement; target of Rs 1317: PINC Research

PINC Research is bullish on UltraTech Cement and has recommended buy rating on the stock with a target of Rs 1317 in its October 20, 2011 research report.

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PINC Research is bullish on UltraTech Cement and has recommended buy rating on the stock with a target of Rs 1317 in its October 20, 2011 research report.

"UltraTech Cement's (UTCEM) Q2FY12 results were significantly below our estimate as higher raw material cost and sharp increase in other expenses dented profits at the operating level. Despite reporting blended realisations 2% above our estimate, the company reported EBITDA margins of 16.4% sharply below our estimate of 23.9%. On a sequential basis, this reflects 1,150bps decline in EBITDA margins. Reported profits at Rs2.8bn were 40% below our estimate of Rs4.6bn and reflects a 59% dip on a QoQ basis."

"Cement dispatches for the quarter reported a moderate growth of 3% YoY (down 7% QoQ) to 8.93mt. Volumes remained subdued due to continued sluggishness in demand off-take particularly in the southern region where the company has almost 25% exposure. Capacity utilisation for the quarter also declined 500bps sequentially to 74%. Due to softening of prices in the traditionally weak monsoon season, blended realisations declined 3% QoQ to Rs4.3k/ton. The decline in realisation was lower than our expectation of 5%. Net sales increased 22.7% YoY to Rs39.8bn and were 3% higher than our estimate. Despite higher than expected realisations, EBITDA margins slumped by 1,150bps on a sequential basis to 16.4% as compared to our estimate of 23.9%. Raw material cost per mt jumped 39% YoY and 46% QoQ to Rs689/ton. Despite lower volumes, other expenditure increased 10% sequentially to Rs7.5bn. Consequently, EBITDA/mt declined 42% QoQ to Rs723."

"The volume growth has been subdued in H1FY12. However, on a low base of last year, we expect an 8% growth in cement dispatches for UTCEM in the second half and hence maintain our volume estimates for FY12 and FY13. Despite the subdued performance in Q2FY12, we expect margins to improve in H2FY12 as increase in cement prices over the last two months will improve realisation from the current levels. We maintain our earning estimates for FY12E and FY13E at Rs70.7 and Rs94.6 respectively. The stock is currently trading at 6.6x FY13E EV/EBITDA. We maintain a 'BUY' rating on the stock with a target price of Rs 1317 discounting FY13E EBITDA 7x," says PINC Research report.

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To read the full report click on the attachment