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Last Updated : Jul 19, 2018 04:05 PM IST | Source:

Analysts remain positive on UltraTech Cement after Q1 earnings, expect up to 27% upside

Brokerage houses remained positive on the stock, expecting the stock to give returns up to 4-27 percent.

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UltraTech Cement's standalone profit for the June quarter declined 32.9 percent year-on-year to Rs 598.39 crore due to dismal margin performance, but revenue from operations grew by 30.6 percent to Rs 8,655 crore.

"The company's acquisition of 21.2 mtpa cement capacity in June 2017 has already achieved an average capacity utilisation of 70 percent across all the regions and a cash break even. This has been one of the fastest ramp ups of an acquired capacity," UltraTech said in its filing. "Sales volume in Q1 jumped 34 percent to 16.8 million tonnes YoY."

But the figures for the three months ended June 2018 are not comparable with the previous corresponding periods as the company had acquired cement plants from Jaiprakash Associates and Jaypee Cement Corporation on June 29, 2017.


UltraTech said notwithstanding the hike in fuel prices, it achieved an operating EBITDA of Rs 929 per tonne compared to Rs 922 per tonne in Q4FY18.

EBITDA (earnings before interest, tax, depreciation and amortisation) increased 4 percent to Rs 1,623.8 crore but margin contracted 474 basis points to 18.8 percent due to rise in depreciation expenses (up 57 percent YoY), finance cost (161 percent), power & fuel cost (53 percent) and freight & forwarding expenses (40 percent).

Brokerage houses remained positive on the stock, expecting the stock to give returns up to 4-27 percent.

Morgan Stanley: Overweight | Target - Rs 4,894 | Return - 27%

EBITDA 3 percent is ahead of our estimate. The key driver to earnings was 34 percent volume growth to 17.5 million tonnes. Positive surprise was a 1.5 percent QoQ improvement in realisation.

EBITDA per tonne was flattish sequentially. Management expects demand momentum to remain strong.

Deutsche Bank: Buy | Target - Rs 4,400 | Return - 14%

Numbers were broadly in-line. We see margin improving by year end and stayed 8-10 percent below consensus on FY19 EPS on weaker margin expectation.

We are structurally positive on company based on better pricing power in West and Central India.

ICICI Securities: Buy | Target - Rs 4,800 | Return - 25%

Higher infra spend along with a revival in the rural economy is expected to boost cement demand by 8 percent in FY18-20E. This, coupled with limited supply (3 percent CAGR in FY18-20E) is expected to drive utilisation and pricing.

Further, the increase in load carrying capacity by truckers is expected to lower logistic cost (accounts for 30 percent of overall cost).

This coupled with various cost efficiencies like higher WHR share (from 7 percent to 15 percent), cost optimisation of Jaypee plants (Rs 50 per tonne) and use of alternative fuel is expected to keep UltraTech ahead of its peers in terms of profitability.

Consequently, we maintain Buy recommendation on the stock with a revised target price of Rs 4,800/share (i.e. at 16x FY20E EV/EBITDA).

Motilal Oswal: Buy | Target - Rs 4,696 | Return - 22%

Ultratech's volumes (including white cement) rose 33 percent YoY (-5 percent QoQ) to 17.5mt (estimates of 17.63mt) due to inclusion of Jaiprakash Associates' assets, which operated at 70 percent utilisation in Q1FY19 (versus 75 percent in Q4FY18). We estimate domestic grey volume growth at 9.5 percent YoY for ex-JPA operations in Q1FY19.

Blended realisations rose 1.4 percent QoQ to Rs 4,947 (estimates of Rs 5,030) due to better pricing in the central and west markets. Realisations improved QoQ in the west and central markets, the impact from which was partially offset by lower prices in the north and south markets.

The stock trades at 14.6x/11.3x FY19/20E EV/EBITDA. We value the stock at 13x FY20E EBITDA to arrive at a target price of Rs 4,696. Buy

Prabhudas Lilladher: Hold | Target - Rs 4,000 | Return - 4%

Ultratech reported Q1FY19 earnings below our estimates due to lower than expected realisations. Street is betting on sustainable strength in prices (with expansion in margins), led by strong demand and emerging discipline.

However, we do not believe that this theme would unfold over next couple of years due to weak quality of demand and long pipeline of capacity addition in the sector.

Most importantly, stretched valuations (EV/EBITDA at 15.2x, P/E of 29x FY20e) limits meaningful upside from current levels with limited margin of safety. We maintain Hold with target price of Rs 4,000.

The stock price closed at Rs 3,857.25, up Rs 7.90, or 0.21 percent on the BSE.

Disclaimer: The views and investment tips expressed by the brokerage houses on are their own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

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First Published on Jul 19, 2018 04:05 pm
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