Accumulate UltraTech Cement - Q3FY12 Result Review - PINC Research

Q3FY12 Result Review - UltraTech Cement - Smart Recovery Post Monsoon; Downgrade 'ACCUMULATE' - TP Rs1,340

Smart Recovery Post Monsoon

UltraTech Cement's (UTCEM) Q3FY12 results were ahead of our expectation as better realisations and an increased other income helped the company post a net profit of Rs6.2bn; 35% higher than our estimate. Pickup in demand post monsoon season led to a 10.8% and 5.8% sequential growth in volumes and realisations respectively. The increase in realisations helped negate the cost push and expand margins 605bps to 22.4% (PINCe 20.3%). Subsidy and other income boosted the reported profits.

- Volumes and realisation pickup
- Cost structure inline with estimates
- Higher other income, lower interest expense

Outlook: Considering the lacklustre scenario for cement demand across key sectors infrastructure and housing, we have reduced our cement volume estimates for FY12 and FY13 by 4% and 7% respectively. Realisations continue to support margins currently; however increased energy costs are expected to impact margins in FY13. We have increased FY12 margin estimate by 32bps while lowering FY13E by 65bps. Consequently, while FY12 earnings estimate is revised upwards by 15.6% to Rs81.8, while FY13 estimate is marginally increased (<1%) to Rs95.4. We also introduce FY14 earnings estimate of Rs105.8.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 6.4x FY13E EV/EBITDA. In view of the limited upside offered, we downgrade it to an 'ACCUMULATE' rating with a revised target price of Rs1,340 (earlier Rs1,317) discounting FY13E EBITDA 7x.

Source : Equity Bulls

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