Morgan Stanley is overweight on UltraTech Cement expecting the cement company to reap benefits from its acquisition of JP Associates’ (JP) cement assets. It believes the deal, should it go ahead, would be completed by March 2018. The acquisition will give UltraTech access to the attractive central India market, where it currently has limited presence. Among other benefits, the brokerage house cited freight cost savings and a shift in focus to other acquisitions as key for the company.
ICICI Securities is of the view that the JP deal will be positive for UltraTech and maintains a ‘buy’ call raising its target price to Rs 3900. It has increased its FY18 revenue and EBITDA estimates for UltraTech by 15 percent and 9 percent, respectively.
“We reduce its FY18E EPS by 13 percent as we factor the company’s USD2.4 billion acquisition of 21.2 million cement capacities of JPA group,” adds a note by ICICI Securities.
It sees the net debt-to-equity ratio increasing to 0.6 times against its earlier estimate of nil.
The deal gives the company access to growth markets of central and east Uttar Pradesh, Madhya Pradesh, Himachal Pradesh and coastal Andhra Pradesh, and is likely to be consummated by the first quarter of FY18 post various regulatory approvals.
“UltraTech's pan-India capacity market share would increase to 20 percent; while its market share in the high growth central region would increase to over 30 percent from the current 11 percent”.
The deal is expected to be EPS-accretive from the third-year post acquisition.
“We estimate UltraTech would need to generate Rs 2000 crore EBITDA to breakeven at net levels.”
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