Stock Market Result Update on UltraTech Cement

Stock Market Result Update on UltraTech Cement for 2QFY2012 with an Neutral recommendation.

During 2QFY2012, UltraTech Cement (ULTC) posted 140.9% yoy growth in its bottom line to `279cr on a low base. Bottom-line growth was largely on account of substantial 19.2% yoy growth (down 5% sequentially) in realization, even as domestic dispatches rose by nominal 2.3% (yoy) to 9.16mn tonnes, impacted by slowdown in demand from the housing and infrastructure sectors and the ongoing Telangana agitation in Andhra Pradesh, where the company has a significant presence. We remain Neutral on the stock.

OPM up by 290bp yoy, but down by whopping 1,147bp qoq: During 2QFY2012, UltraTech’s net sales grew by 21.6% yoy to `3,910cr, primarily on account of higher realization. The company’s blended realization improved by 19.2% yoy to `4,125/tonne (down 5% qoq). Although, the company faced margin pressures during the quarter due to higher raw-material, power and freight costs, OPM grew by 290bp yoy to 16.4% on account of higher realization. However, on a sequential basis, the company’s margin declined by whopping 1,147bp due to lower realization and higher costs.

Outlook and valuation: We expect ULTC to post a 21.2% CAGR in its top line over FY2011-13, aided by higher volumes (also FY2011 financials included only nine months of Samruddhi’s operations) and better realizations. At current levels, the stock is trading at EV/EBITDA of 7x and EV/tonne of US$130 on FY2013 estimates, which we believe is fair. Hence, we maintain our Neutral recommendation on the stock.