Hold Ultratech Cement; target of Rs 1170: Emkay

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Hold Ultratech Cement; target of Rs 1170: Emkay

Emkay Global Financial Services has recommended hold rating on Ultratech Cement with a target of Rs 1170, in its October 20, 2011 research report.

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Emkay Global Financial Services has recommended hold rating on Ultratech Cement with a target of Rs 1170, in its October 20, 2011 research report.

"Ultratech Cemen, EBITDA of Rs 5.81bn (+43% yoy) below est Rs 5.96bn dragged by higher freight costs (Rs 819/t up 15% yoy) & RM costs (Rs 594/t, 14% yoy). Higher other income drive net profit beat. Minimal sequential drop in cement prices in south (22% of UTCEM's sales) &low base drive +20% yoy jump in realization to Rs 4241/t, helping 21% growth in topline. Cement price already up 6% from Q2FY12 avg, led by shorter pre Diwali construction season and continued cost pressures. Despite factoring in higher costs, the momentum in price hikes has led to EPS upgrade of 3.6%/2.5%- for FY12E/13E. Recent decline in petcoke price & sharp price hikes to improve UTCEM's profitability going forward."

"With cement prices holding firm in south (22% of UTCEM's sales) as opposed to sharp drop in prices in Q2FY11, UTCEM realization jumped 20% yoy to Rs 4241/t helping 21% revenue 21.6% growth, despite sluggish volume growth of 1.3% (9.2mnt). The topline at Rs 39.1bn came in above estimates led by higher than expected cement realization. Despite above estimates topline, UTCEM's EBITDA at Rs 5.81bn (+42.6% yoy) came in below estimates (Rs 5.96bn) on account of higher than estimated freight costs (up 15% yoy) & higher RM costs (up 14.4% yoy). EBITDA/t of Rs 631/t jumped 41% yoy because of low base, but the same declined 48% qoq. The better than estimated net profit at Rs 2. 8bn (estimates of Rs 2.5 bn) was driven by higher other income and lower interest."

"Though on an all India basis cement prices in Q2FY12 declined by 7% due to the seasonal impact the uptick in prices which started in Sept-11 has gained momentum. The hikes this time around are substantial and in quicker succession as Pre Diwali construction season is the shortest this year (~25 days vs 40-45 days). Due to this increased momentum in prices, we are revising our estimates for FY12E/13E upwards by 4.4%/2.0%. Though we believe that costs would peak out by December 2011, the industry remains exposed to the risk of proposed new mining tax as it would increase the limestone mining costs by Rs 75+80/t. Further given Coal India's strong pricing power, the coal behemoth could ask for a price hike to compensate for the higher incidence of tax. Upgrade to HOLD, revise price target to Rs 1170 (Rs 1050 earlier)," says Emkay Global Financial Services research report.

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