Why Anand Rathi prefers Ultratech over ACC, Ambuja

While major cement players like ACC, Ambuja and UltraTech have disappointed market by their quarter ending September numbers, Jaspreet Singh Arora, senior analyst - Cement & Construction - Institution Equity, Anand Rathi is bullish on UltraTech.

Also read: UltraTech Q2 net falls 52% on subdued demand, lower prices
Speaking to CNBC-TV18, Arora says apart from UltraTech’s deal with Jaiprakash Associates for its cement unit, the cement major has good presence in ancillary business too.
“If there is any volume growth in double digits, probably Ultratech will be the only one to catch on that and get the benefit of it,” adds Arora. Below is the edited transcript of Arora’s interview to CNBC-TV18. Q: What have you made of both ACC and Ambuja Cement? A bunch of brokerages are still positive on ACC. Do you think that we saw the worst in the cement sector and we can expect something better in the second half?
A: The results are more or less disappointing for both ACC and Ambuja. In fact, looking at the historical stats Ambuja has probably reported the lowest EBITDA per tonne in the last nine years and that is the kind of profitability that some of the companies are reporting.
ACC was no different. So, ACC would have been the lowest in the last three years. It was a big disappointment after Ultratech and now with ACC and Ambuja. Similar was the case with Madras Cement.
With the prices moving in the upward trajectory in the last month, added with the expectation that the volume growth should be better year-on-year, the second half of the fiscal will probably give some amount of excitement. Q: The top pick in the entire space up until now has been Ultratech Cement post that deal, we did see a minor hiccup post the numbers but by and large the stock has been on a steady wicket, how do you approach that name now?
A: Ultratech has been a top pick in the sector. Post the deal, it is going to be sometime before that materialises and comes on to Ultratech’s books, because there are whole host of approvals required before Ultratech can take over that asset.
But given the fact that it was backed at a very fancy valuation, which was probably at the lowest that one could have seen in terms of deal in the last couple of years, the fact that Ultratech is a domestic story and the largest player and they are also present in ancillary businesses, one can expect good growth. However, this growth is not expected in ACC or Ambuja.
If there is any volume growth in double digits, probably Ultratech will be the only one to catch on that and get the benefit of it. This is only one story in the largecaps here. Q: Are you picking up anything in the midcap space as well?
A: In the midcap space, we are bullish on Shree Cement and Madras Cement but the way Madras Cement has performed in the last two quarters, the only name to bet on right now in the midcaps would only be Shree Cements.