Reduce UltraTech Cement; target of Rs 1290: Emkay

Emkay Global Financial Services is bearish on UltraTech Cement and has recommended reduce rating on the stock with a target of Rs 1290 in its April 24, 2012 research report.

“UltraTech Cement (UTCEM) delivered impressive 4QFY12 performance with EBITDA at Rs12.64bn growing a healthy +22% yoy ahead of our (Rs10.9bn) and street estimates. The performance was driven by better than expected cement realisation which at Rs4624/t (+11.2% yoy & 2.4%) came in higher than estimates of Rs4586/t. Lower P&F costs, which declined 6.6% led by decline in international coal as well pet coke price also boosted the performance helping a strong 15% yoy & qoq improvement in EBITDA/t which at Rs1095/t also came in ahead of estimate (Rs977/t). Aggregate cost pressure was contained during the quarter as total Cost increased decline 1% qoq to Rs3529/t largely driven by 6.6% decline in P&F cost.”

“UTCEM’s revenues for the quarter at Rs53.36 bn grew a healthy 19% yoy with volume growth of 7% & realisation improvement of 11%. Though the aggregate volume growth at 7% yoy was barely impressive, domestic grey cement volumes at 11.22 mt grew 9.8% yoy showing some improvement. White cement biz continued the good show with aggregated volumes (White cement+Putty) posting 19% yoy volume growth. UTCEM’s impressive operating show was boosted by a significant 174% yoy jump in other income (led by booking of treasury gains on some high yield investments) fuelling APAT beat which at Rs8.6 bn grew 47% yoy (70% qoq) came in significantly ahead of estimates (Rs6.1 bn).”

“Led by better than expected exit realisation and higher other income, we upgrade FY13E EPS by 6.2% to Rs86. We introduce our FY14E EPS at Rs93. Though UTCEM’s 4QFY12 performance was boosted by lower costs helping expansion in margins, we expect margins to come under pressure in the ensuing quarters as the recent cost increases like railway freight hike (+23% effective from March 6, 2012) & excise duty hike (+200 bps from March 16, 2012)) are yet to reflect completely. CIL’s coal price hikes post its wage hike would also add further pressure on energy costs. We believe that the stock’s valuations at PER 16.7X & EV/T of USD149 does not factor in these margin risks and leaves little upside from current levels. Maintain REDUCE with TP of Rs 1290,” says Emkay Global Financial Services research report.

Non-Institutions holding more than 90% in Indian cos 

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