See UltraTech FY17 EPS at Rs 140; target Rs 2600: Kotak

Below is the transcript of the interview.

Latha: What are your estimates in terms of earnings and what is your price target now?

A: Our price target is Rs 2,600, we have moved to FY17 based earnings, we have built in a strong set of growth so it is more around Rs 109-110 earnings per share (EPS) for FY16, more sort of steep trajectory for FY17, Rs 140 EPS but there is clearly downside risk on the earnings estimates.

Sonia: What about on the EBITDA per tonne, what would your own estimates be from hereon for the first half of FY16?

A: For FY15, they did closer to about Rs 900 per tonne blended. We are building that to go more to about Rs 1,150 and then Rs 1,350 by FY17. So it is a steep trajectory but from the context or from materials business you understand that the delta of price increase is pretty sharp and monthly price changes itself can have large delta on the overall EBITDA per tonne. So while in the context of the current performance, it may look steep but it is easy to achieve if price increases sustains.

Latha: Since Ultratech was always held up as the best of the cement stocks, are you positive on any of the other cement stocks with these kinds of numbers from Ultratech?

A: We have recently initiated coverage on these smaller cement names. The midcap names where the capacity addition, their cost profile etc are better and valuations are less demanding. So we have sort of been more favourable on the smaller names as opposed to the large ones where expectations were high and valuation multiples even more higher.

Latha: Which ones are these?

A: This is essentially Orient Cement, JK Lakshmi Cement, Dalmia Cement, this is the pack of four that we have initiated on.Sonia: For Ultratech what percentage of their demand comes from rural India if you have any indications and is that also one of the reasons why demand slowdown has exacerbated for companies like Ultratech?

A: Management highlighted on the call that about 50 percent or so of their demand comes from rural sales and they did highlight how that has also been a driving factor for the weak volumes. The rural economy has not yet picked up but they remain hopeful essentially. Hopeful is the key word out there because so far the trajectory is not very encouraging.