ULTRATECH CEMENTS LTD : ACCUMULATE AT EVERY LEVELS !!!

Scrip Code: 532538 / ULTRACEMCO

CMP:  Rs. 1705.70; Accumulate at every levels.
Short Term Target : Rs. 1790; Medium to Long term Target: Rs. 1875; STOP LOSS – Rs. 1569.24; Market Cap: Rs. 46,775.40 Cr; 52 Week High/Low: Rs. 2069.05 / Rs. 1402.35

Total Shares: 27,42,29,957 shares; Promoters : 16,98,87,299 shares –61.95 %; Total Public holding : 10,43,42,658 shares – 38.05 %; Book Value: Rs. 545.54; Face Value: Rs. 10.00; EPS: Rs. 74.12; Dividend: 90.00 % ; P/E: 23.01 times; Ind. P/E: 14.82; EV/EBITDA: 12.12.

Total Debt: 4,462.68 Cr; Enterprise Value: Rs. 52,981.91 Cr.

ULTRATECH CEMENT LIMITED: ULTRACEMCO was incorporated in 2000 and is based in Mumbai, India. It was formerly known as Ultra Tech Cemco Limited and changed its name to ULTRATECH CEMENT Ltd on October 2004. It’s a subsidiary of Grasim Industries Ltd from Aditya Birla Group. The Company is engaged in the business of cement and cement related products. It manufactures and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement. UltraTech Cement Limited, together with its subsidiaries, primarily engages in the manufacture and sale of cement in India and internationally. Its products include ready mix concrete; building products, including waterproofing solutions, polymer modified mortar, lightweight autoclaved aerated concrete blocks, thin layer jointing mortar, and ready mix plaster; and white cement. The Company also manufactures ready mix concrete (RMC). UltraTech Cement is an exporter of cement clinker. The Company has an annual capacity of 23.1 million tons. The Company has 11 integrated plants, one white cement plant, one clinkerisation plant in the United Arab Emirates, 15 grinding units - 11 in India, two in the United Arab Emirates, one in Bahrain and Bangladesh each and five terminals - four in India and one in Sri Lanka. In the 2011, its wholly owned subsidiary, UltraTech Cement Middle East Investments Limited (UCMEIL) acquired ETA Star Cement together with its operations in the United Arab Emirates, Bahrain and Bangladesh and acquired management control. On July 1, 2010, Samruddhi Cement Limited (Samruddhi) amalgamated with the Company.  The Company's subsidiaries include Dakshin Cement Limited, UltraTech Cement Lanka (Pvt.) Ltd. and UltraTech Cement Middle East Investments Limited. In India the company has 11 Integrated Plants, 11 Grinding Units, 5 Bulk Terminals, 4 Jetties. It has only 1 bulk terminal at Sri Lanka. In UAE, company has 2 Grinding Units, 1 Clinker production, 1 star cement head office. UltraTech has 1 Grinding unit each at Bahrain and Bangladesh. The company is compared to Ambuja Cements Ltd, ACC Limited, Shree Cement Ltd, Grasim Ind Ltd and Rain Commodities Limited domestically and Globally compared with Holcim of Germany, Ashaka Cement Plc of UAE, Bamburi Cement of UAE, Oman Cement Company of UAE, Kuwait Cement Company of UAE, Qatar National Cement Company of UAE, Asia Cement Corp of China, Chia Hsin Cement Corp of China, Krosaki Harima Corp of Tokyo, Ssangyong Cement Co of Japan, Taiwan Cement Corp of Taiwan, West China Cement of Hong Kong, Lafarge Cement of Germany, Vulcan materials Co of USA, US Concrete Inc of USA, United States lime & Minerals of USA, Grupo Argos S.A of USA, Cemex Latam Holdings S.A of USA .

Investment Rationale:

UltraTech’s inception can be traced back to the mid-1980s with the establishment of Grasim’s first cement plant at Jawad in Madhya Pradesh. In 2001, with the objective of increasing its reach, Grasim acquired a stake in L&T Cement Ltd. The stake was further increased to a majority stake in 2003 thereby giving Grasim a pan-India presence and an increased market share. In 2004, the demerger of L&T’s cement business was completed and Grasim acquired a controlling stake in L&T Cement Ltd and the name was subsequently changed to UltraTech cement. The cement business of Grasim was demerged and vested in Samruddhi Cement Limited in May 2010, with Samruddhi Cement Limited consequently being amalgamated with UltraTech Cement Limited in July 2010. UltraTech Cement now is a subsidiary of Grasim, a part of the Aditya Birla Group. Post-merger of Grasim’s cement business, it is the largest cement company in India with a total cement capacity of 61.5mt (by 1QFY16) with a pan-India presence. It is the largest exporters of cement and clinker from India. Post-merger, it would be the largest cement company in India and 10th largest in the world. UltraTech has a potential to increase without incurring major capex by increasing utilization and blending, along with locational advantage, gives it the flexibility to either export or sell in the domestic market. Company’s allied businesses of white cement and RMC has lender stability to company’s overall performance. UltraTech’s management expects long-term cement demand to grow around 8 % while in the near term it could be challenging. In Jul’13 it commissioned a 3.3m-ton clinker plant in Karnataka, adding to its earlier commissioning in Mar’13 of similar capacity in Chhattisgarh. In Oct’13 it commissioned a 1.6m-ton grinding unit in Jharsuguda, Orissa, adding to its earlier commissioning of similar capacity in Hotgi, Maharashtra. The balance five associated grinding units will be set up in 4QFY14 and FY15. During 2Q, Ultratech acquired JaiPrakash Associates’ 4.8m-ton unit in Gujarat, lifting its capacity to 59m tons, while ongoing expansions would further that to 70m tons by Mar’15. The transaction was at an Enterprise Value of Rs. 3,800 Cr (US$125 a ton) and is expected to be completed only by 1QFY15 given multiple approvals required. Looking at the current quarterly results which showed high operating leverage, especially post commissioning of new capacities in 1QFY14, could result in volatile earnings. Post weak pricing environment during monsoon, cement prices and demand are expected to pick-up post monsoon. Structural increase in cost base (both capex and opex) would necessitate into higher cement prices. Revival in cement demand would be key catalyst for the stock performance.

Outlook and Valuation:

UltraTech is the 10th largest cement manufacturer in the world making it a significant global player. It has grinding units, jetties, bulk terminals and integrated plants all across the world. UltraTech Cement is the country’s largest cement and clinker exporter, catering to export markets in countries across the Indian Ocean, Africa, Europe and the Middle East. Such diverse presence across the countries has helped UltraTech to leverage economies of scale and enable it to become a name to reckon within the international market. UltraTech reported its Q3, and reported an average realization of Rs. 4,650 a ton down by 2 % yoy. At 10.3m tons, volumes of grey and white cement, clinker, wall putty rose by 1 % yoy and 8 % on qoq. The Grey cement sales were up 0.6 % yoy and 8 % qoq, those of white cement including wall putty were up 10 % yoy. RMC revenue was at Rs. 450 Cr and that of white cement and wall putty it was Rs. 420 CR. UltraTech reported its EBITDA/ton, at Rs. 745, despite its lower-than-expected realisations. The benefit of lower coal prices (net of rupee devaluation) and optimisation of the fuel mix led to an 8 % yoy dip in power & fuel costs a ton. Freight inched up 4 % yoy chiefly due to a hike in diesel prices and a rise in freight charges. Higher other income, lower interest, depreciation and tax rate of 27 % led to better PAT. The outlook on UltraTech continuous to remain challenging, with demand growth in FY14 is likely to be around 5 %, though over the long run it is likely to be over 8 %. The key value drivers could be housing demand and infrastructure spending. UltraTech has commissioned 25 MW thermal power plants in Andra Pradesh. Overall, the company is investing around Rs. 13,700 Cr in 12.7mt capacities, CPP, marketing and logistic infrastructure, modernization/ up-gradation and in RMC business. The clinkerization plant of 3.3MT in Karnataka has been commissioned in 2QFY14, followed up with 1.6mt grinding unit at Orissa. Further, the company’s planned capacity of 2.9mt at Rajasthan plant including 2 split grinding units with capex of Rs. 2,100 Cr would commission by Mar-15, and this would take total capacity in India to 68mt. On Consolidation of Jaypee's Gujarat plant, UltraTech’s current valuations largely factors in for potential recovery in FY15, benefit of which would be diluted due to initial impact of Jaypee's Gujarat plant acquisition by 1HFY15. At the current price of Rs. 1705.70, the stock is trading at a P/E of 24.05 x on FY14E and 18 x on FY15 estimates. UltraTech could report and EPS of Rs. 70.90 for FY14E and Rs. 94.80 for FY15E. Ultratech Cements has good potential for upside and can touch price of Rs. 2092, One can continue to ACCUMULATE the stock and would advise investors to use declines in the stock to buy with a long term view. One can buy ULTRATECH with a target price of Rs. 1875.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 1790.00.

KEY FINANCIALS	FY13	FY14E	FY15E	FY16E
SALES (₹ Crs)	20,017.90	20,070.00	23,030.00	26,390.00
NET PROFIT (₹ Cr)	2,655.40	1,940.00	2,600.00	3,130.00
EPS (₹)	96.80	70.90	94.80	114.10
PE (x)	17.80	24.30	18.10	15.10
P/BV (x)	3.10	2.80	2.50	2.20
EV/EBITDA (x)	9.70	12.70	10.10	8.30
ROE (%)	18.90	12.10	14.50	15.30
ROCE (%)	21.40	14.20	16.80	18.70

I would buy ULTRATECH CEMENT LTD for the short term would be Rs. 1790 and for the Medium to Long term for target of Rs. 1875. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 1569.24 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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GRASIM IND : LEADER IN VSF & CEMENT SECTOR !!!

Scrip Code: 500300 / GRASIM

CMP:  Rs. 2504.85; Accumulate at Rs. 2480 - Rs. 2505 current levels.
Short Term Target : Rs. 2800; Medium to Long term Target: Rs. 3060; STOP LOSS – Rs. 2281.00; Market Cap: Rs. 22,992.79 Cr; 52 Week High/Low: Rs. 3510.00 / Rs. 2105.65.

Total Shares: 9,17,93,094 shares; Promoters : 2,34,28,918 shares –25.52 %; Total Public holding : 6,83,64,176 shares – 74.48 %; Book Value: Rs. 1102.68; Face Value: Rs. 10.00; EPS: Rs. 128.46; Dividend: 225.00 % ; P/E: 19.49 times; Ind. P/E: 13.86; EV/EBITDA: 4.93.

Total Debt: 8,427.34 Cr; Enterprise Value: Rs. 31,192.68 Cr.

GRASIM INDUSTRIES: GRASIM IND was incorporated in 1947 and is based in Gwalior, Madhya Pradesh, India. The company was earlier known as Gwalior Rayond Silk Mfg (Wvg). Co. Ltd and changed its name to Grasim Industries on 22 July 1986. Grasim Industries is a flagship company of Aditya Birla Group. Grasim Industries Limited engages in the manufacturing and sale of Viscose Staple Fibre (VSF), cement, chemicals, and textiles worldwide. The company’s products include grey cement, white cement, chemicals, sponge iron, and textiles. The company’s VSF is a biodegradable fibre used in apparels, home textiles, dress material, knitted wear, and non-woven applications; and cement products comprise grey and white cement, and ready mix concrete. The company’s chemical products consist of rayon grade caustic soda; stable bleaching powder used in water purification, sanitation, and as a bleaching agent; poly aluminum chloride used in water treatment, paper sizing, and effluent treatment; and chloro sulphonic acid used in vinyl sulphate, the raw material for dyes and intermediates, saccharin, drugs, and pharmaceuticals. The company’s textile products include fabrics, synthetic yarns, worsted dyed yarn spun, and branded suiting under the brand names Grasim and Graviera. Through its subsidiary, Grasim Industries Limited sells its products through a network of 50 showrooms, as well as through 200 wholesalers and 25,000 multi-brand outlets. In August 2011 Grasim Industries acquired Aditya Birla Power Ventures Ltd and on March 2012 it acquired 33.33 % interest in Aditya Group AB, Sweden. Grasim industries is locally compared with ACC, Jaiprakash Associates ltd, Ultratech Cement ltd, Century Textiles and Industries ltd and globally compared with Lafarge Cement Zambia PLC, Oman Cement Company, Bamburi Cement, Holcim Liban, Kuwait Cement Company

Investment Rationale:

Grasim Industries is India’s one the best and biggest VSF & Cement Company. Phase I of the Harihar captive Power Plant of 20 MW, Karnataka, and expansion of 18,250 tons per annum was commissioned in Sep’12; phase II of similar capacity in May’13. The Greenfield project at Vilayat, Gujarat, (120,000 tons) will be commissioned in 3QFY14 in a phased manner. A major revamp of the Nagda plant has begun, to be completed in phases over the next two years. The fresh capacities and upcoming projects would support strong volume growth, starting 2HFY14. Company has commissioned 3.3MT clinkerisation plant in Karnataka. It had already commissioned clinker unit of 3.3MT at Chattisgarh and a grinding unit of 1.55MT at Hothi, Maharashtra during Q4FY13. Cement grinding capacity will be operational in phases in line with clinker production. Company has further sanctioned a capex of Rs 21 bn towards setting up of grinding units, modernization and RMC plants across the country. Company expects volume increase to reflect from H2FY14 from the recently commissioned capacities. Looking at the capacity expansion underway in both cement as well as the VSF segment, a boost in revenue may be seen from volumes. The cement segment of Grasim is through Ultratech where Grasim hold 60.3 % stake. The capacity in Ultratech is seen to grow from 52.5 Million Tonnes Per Annum to 54.5 MTPA during June 2013 quarter while 10 MTPA capacity expansions are underway. The muted demand and realisation in Cement is likely to get a boost once the monsoon season gets over. The global industry scenario seems to be improving. The demand supply imbalance in China and high cotton inventory continued to impact VSF realisation with sharp decline in May 2013 but stabilisation was seen in July onwards. With the commissioning of Harihar Expansion the production was up by 5 % on year on year basis. The Kharach Unit operated at low capacity for 45 days due to repairs of water canal supplying canal by state government but with the new reservoir at Nagda ensured no loss of production. Due to depreciation of Rupee the realisation remained under pressure in line with the global trend.

Outlook and Valuation:

Grasim Industries is well placed to take advantage of capacity expansion in both its segments. It is expected that government may increase spending before election which will in tuen boost the demand from rural India. The water scarcity problems that had hit the demands in Karnataka and Maharashtra are expected to get resolved. The subdued stock prices here offers a good opportunity for the investors to enter the stock and given the likely recovery in the cement business and with improving balance sheet the stock somewhat provides a defensive opportunity in this volatile markets. The 1QFY14 VSF volumes went up 0.7 % YoY, the realisations was at Rs. 126/kg which saw a dip of 8.3 % YoY. Realisations were hit by a demand-supply imbalance in China and depressed cotton prices due to huge cotton inventories. Despite the Kharach unit operating at low capacity for 45 days due to water supply issues, production rose 5 % YoY. PAT slid 17 % YoY but was higher than expected due to a lower tax charge of 6.6 % of PBT. Grasim expects prices in the near term to be influenced by the trend in cotton prices and recovery in the global economy mainly from China and US. The long-term outlook is bright on a rising population, developing-markets consumption and a preference for comfort fabric leading to a rise in demand for quality cellulosic fibre. Management expects range-bound VSF prices and margins in the near term. Expect profitability in the rest of FY14 to be better, led by expansion at Harihar, Vilayat, and a marginal recovery in VSF prices. At current price of Rs. 2504.85, the stock is trading at 21.97 x P/E for FY14E and company could report an  EPS of Rs. 114 for FY14E and Rs. 135 for FY15 estimates. One can buy GRASIM IND Limited with a target price of Rs. 3060.00 for Medium to Long term investment. And for the shorter term the target could be Rs. 2800

SOTP Valuation :-

Business Division	Value Per Share (in. ₹ )
VSF Division	374.15
Value of Chemical Division	108.04
Less :NET DEBT (standalone)	(173.76)
TOTAL	308.43
60.3 % in Ultratech @20% holding disc.	2534.34
Investments @20% holding disc.	216.56
TOTAL VALUE PER SHARE	3059.33

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	4,876.30	5,181.40	5,546.00	6,635.80
NET PROFIT (₹ Cr)	1,177.60	1,021.60	1050.60	1,234.80
EPS (₹)	128.00	111.00	114.00	135.00
PE (x)	19.90	22.90	22.30	19.00
P/BV (x)	2.60	2.30	2.10	2.00
EV/EBITDA (x)	18.70	22.70	22.20	15.90
ROE (%)	13.70	12.80	10.00	10.80
ROCE (%)	10.60	7.80	6.50	8.10

I would buy GRASIM INDUSTRIES with a price target of ₹ 3060 for Medium to Long term target, for Short term target could be Rs. 2800. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 2281.00 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold GRASIM INDUSTRIES LTD in my investment portfolio. 

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ULTRA TECH CEMENTS: CEMENTING STRONGLY AHEAD !!!

Scrip Code: 532538 / ULTRACEMCO

CMP:  Rs. 1837.75; Buy at every dips.
Medium to Long term Target: Rs. 2066; STOP LOSS – Rs. 1690.73; Market Cap: Rs. 50,369.81 Cr; 52 Week High/Low: Rs. 2154.20 / Rs. 1212.05

Total Shares: 27,40,84,137 shares; Promoters : 17,36,05,057 shares –63.34 %; Total Public holding : 10,04,79,080 shares – 36.66 %; Book Value: Rs. 469.06; Face Value: Rs. 10.00; EPS: Rs. 102.00; Div: 80.00 % ; P/E: 18.17 times; Ind. P/E: 19.84; EV/EBITDA: 10.02.

Total Debt: 3,808.13 Cr; Enterprise Value: Rs. 54,177.94 Cr.

ULTRATECH CEMENT LIMITED: ULTRACEMCO was incorporated in 2000 and is based in Mumbai, India. It was formerly known as Ultra Tech Cemco Limited and changed its name to ULTRATECH CEMENT Ltd on October 2004. It’s a subsidiary of Grasim Industries Ltd from Aditya Birla Group. The Company is engaged in the business of cement and cement related products. It manufactures and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement. UltraTech Cement Limited, together with its subsidiaries, primarily engages in the manufacture and sale of cement in India and internationally. Its products include ready mix concrete; building products, including waterproofing solutions, polymer modified mortar, lightweight autoclaved aerated concrete blocks, thin layer jointing mortar, and ready mix plaster; and white cement. The Company also manufactures ready mix concrete (RMC). UltraTech Cement is an exporter of cement clinker. The Company has an annual capacity of 23.1 million tons. The Company has 11 integrated plants, one white cement plant, one clinkerisation plant in the United Arab Emirates, 15 grinding units - 11 in India, two in the United Arab Emirates, one in Bahrain and Bangladesh each and five terminals - four in India and one in Sri Lanka. In the 2011, its wholly owned subsidiary, UltraTech Cement Middle East Investments Limited (UCMEIL) acquired ETA Star Cement together with its operations in the United Arab Emirates, Bahrain and Bangladesh and acquired management control. On July 1, 2010, Samruddhi Cement Limited (Samruddhi) amalgamated with the Company.  The Company's subsidiaries include Dakshin Cement Limited, UltraTech Cement Lanka (Pvt.) Ltd. and UltraTech Cement Middle East Investments Limited. The company is compared to Ambuja Cements Ltd, ACC Limited and Rain Commodities Limited domestically.

Investment Rationale:

Ultratech Cement Limited is India's largest manufacturer of cement with an installed capacity of 52 Million Tonnes Per Annum. Ultratech’s massive 10 mtpa capacity addition program is nearing completion. The 1 mtpa Surat grinding unit is expected to be commissioned by 4QFY13. Ultratech board has sanctioned an additional capex of Rs. 1000 Cr towards modernization and setting up of Ready Mix Concrete (RMC) plants across the country. This brings the total capex under implementation to about Rs. 11400 Cr. The Company has entered into a Share Purchase Agreement with the shareholders of Gotan Limestone Khanij Udyog Pvt. Ltd (GKU) and has acquired GKU’s entire equity stake. Consequently, GKU has become a wholly owned subsidiary of the Company with effect from July 23^rd, 2012. Through this acquisition Ultratech is looking to enhance its white cement capacity. Ultratech’s revenues for Q3FY13 improved by 6 % YoY led by improvement in cement realizations. However, on a sequential basis, cement realizations witnessed a marginal decline. An average cement prices at the end of Q3FY13 witnessed a correction sequentially and stood at Rs. 284/bag. Correspondingly, company's realizations (including RMC) during Q3FY13 stood at Rs. 4690 per tonne as against Rs. 4760 per tonne during Q2FY13 adjusting with white cement, wall care putty and cement export revenues. The combined grey cement and clinker sales volume stood at 9.62 MT during Q3FY13 as against 9.7 MT during Q3FY12. Export cement and clinker volumes stood at 0.32 MT at approx. price of $55/tonne for cement and approximately $45/tonne for clinker. Company is in the process of setting up 4.8 MT plant at Raipur, Chattisgarh and 4.4 MT plant at Malkhed, Karnataka along with a captive power plant of 75 MW and waste heat recovery plant of 45 MW. These new capacities are likely to get operational by mid FY14. The company is expected to dispatch about 41 MT for FY13 translating into revenues of around Rs. 20,000 Cr for FY13 & for FY14 the estimates for volumes are expected to grow to 48.9 MT with expected revenues of Rs. 25,500 Cr for FY14. 

Outlook and Valuation:

Ultratech's revenues for Q3FY13 improved by 6 % YoY led by improvement in cement realizations. However, on a sequential basis, cement realizations witnessed a marginal decline. Company’s operating margin for Q3FY13 remained same on yearly basis despite the higher cost and improvement in cement prices. The Net profit performance was boosted by strong operating margins and higher other income. UltraTech’s average realizations were up 8 % YoY to Rs. 4,760 per ton. At 10.2 m tons, volumes for grey cement, clinker, white cement & wall putty dipped by 1.5 % YoY but up 7.1 % QoQ. Grey cement sales were up by 7.1 % QoQ which are in line with the industry growth rate. RMC recorded revenue of Rs. 500 Cr up by 47 % YoY and white cement and wall putty recorded Rs. 400 Cr up by 18 % YOY. Ultra Tech’s Average EBITDA/ton stood at Rs. 1,005/ton. The increase in the price of diesel and railway freight mainly led to an 18 % YoY rise in raw material cost and a 7 % YoY rise in freight. Benefit of softening coal prices was partly offset by the rupee depreciation against the dollar, leading only to a minor dip of 2 % YoY in power & fuel costs per ton. Company’s higher other income also boosted Profit after Tax growth of 9 % YoY. Company’s management expects cement demand to grow over 8 % in the long term even as the surplus scenario will continue in next three years. The two new units at Chattisgarh and Karnataka are likely to start by early FY14, taking total capacity to 59.5m tons. During 3QFY13, the Ministry of Coal, de-allocated the company’s coal block (allocated jointly with a JV partner) in Chattisgarh. The company has filed against the order and obtained a stay in this regards. The Competition Commission of India (CCI) has slapped 11 cement companies with a fine of Rs. 6,714.83 crore for price cartelisation, the highest penalty ever imposed by the fledgling, but increasingly assertive, anti-trust regulator. 11 firms were found guilty of price rigging. These 11 firms include ACC, Ultratech Cement, Grasim Cement (now a part of Ultratech), Jaypee Cements, Lafarge India, Jk Cements, India Cements, Madras Cement, Century Cements, Binani Cements and Ambuja Cements. The Industry body Cement Manufactures Association has also been fined. These 11 firms and the association are drawing up plans to question the legality of the case when it comes up for hearing before the Competition Appellate Tribunal (COMPAT the 3 member tribunal) on 29 January 2013. In any case any adverse decision would mean the blow of Rs.1175.40 Cr on Ultratech which is 6 % - 7 % of its total sales. Cement prices rose to all time high of Rs.330/bag in middle of 2012, & looking at the strong recovery going forward cement company will be have boost in their profitability. The clarity on the CCI investigation report should be a major trigger for the stock. At current price of Rs. 1837.75, the stock is trading at 19.2 x P/E on estimated EPS of Rs. 95.30 for FY13E and 16 X P/E on the estimated EPS of Rs. 114.80 for FY14E. Ultratech Cements is a good buy at the current market price & one can ACCUMULATE the stock and is advised to use declines in the stock to buy with a long term view with a target price of Rs. 2066.00 for Medium to Long term investment.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	18,158.30	20,705.50	24,384.50	29,484.40
NET PROFIT(Rs. Crs)	2,369.60	2,611.40	3,147.00	3,850.00
EPS (Rs.)	86.50	95.30	114.80	140.50
PE (x)	22.10	20.00	16.60	13.60
P/BV (x)	4.10	3.50	3.00	2.50
EV/EBITDA (x)	13.10	11.40	8.90	6.80
ROE (%)	20.10	18.60	19.00	19.60
ROCE (%)	17.60	18.00	19.50	21.20

I would buy UltraTech Cements LTD with a price target of Rs. 2066 for Medium to Long term. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 1690.73 on every purchase. 

*As the author of this blog I disclose that I do hold Ultra tech Cements LTD in my investment portfolio.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

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ULTRATECH CEMENT LTD: SHOULD BE INVESTORS CHOICE !!!

Scrip Code: 532538 / ULTRACEMCO

CMP:  Rs. 1368.70; Buy at current levels.
Medium to Long term Target: Rs. 1,566; STOP LOSS – Rs. 1260.00; Market Cap: Rs. 37,508.08 Cr; 52 Week High/Low: Rs. 1544.70 / Rs. 914.00

Total Shares: 27,40,65,301 shares; Promoters : 17,36,05,057 shares –63.35 %; Total Public holding : 10,04,60,244 shares – 36.65 %; Book Value: Rs. 478.25; Face Value: Rs. 10.00; EPS: Rs. 89.25; Div: 60 % ; P/E: 20.10 times; Ind. P/E: 15.33; EV/EBITDA: 14.96.

Total Debt: 4,144.60 Cr; Enterprise Value: Rs. 41,652.68 Cr.

ULTRATECH CEMENT LIMITED: ULTRACEMCO was incorporated in 2000 and is based in Mumbai, India. It was formerly known as Ultra Tech Cemco Limited and changed its name to ULTRATECH CEMENT Ltd on October 2004. It’s a subsidiary of Grasim Industries Ltd from Aditya Birla Group. The Company is engaged in the business of cement and cement related products. It manufactures and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement. The Company also manufactures ready mix concrete (RMC). UltraTech Cement is an exporter of cement clinker. The Company has an annual capacity of 23.1 million tons. The Company has 11 integrated plants, one white cement plant, one clinkerisation plant in the United Arab Emirates, 15 grinding units - 11 in India, two in the United Arab Emirates, one in Bahrain and Bangladesh each and five terminals - four in India and one in Sri Lanka. In the 2011, its wholly owned subsidiary, UltraTech Cement Middle East Investments Limited (UCMEIL) acquired ETA Star Cement together with its operations in the United Arab Emirates, Bahrain and Bangladesh and acquired management control. On July 1, 2010, Samruddhi Cement Limited (Samruddhi) amalgamated with the Company.  The Company's subsidiaries include Dakshin Cement Limited, UltraTech Cement Lanka (Pvt.) Ltd. and UltraTech Cement Middle East Investments Limited. The company is compared to Ambuja Cements Ltd, ACC Limited and Rain Commodities Limited domestically.

Investment Rationale:

ULTRA TECH CEMENTS limited is in the process of setting up 4.8 MT plant at Raipur, Chhattisgarh and 4.4 MT plant at Malkhed, Karnataka along with a captive power plant of 75 MW and waste heat recovery plant of 45 MW. These new capacities are likely to get operational by Q1FY14. This will increase company's capacity by nearly 9.2 MT, taking it to a total capacity of 59 MT. Revenue growth of the company during Q4FY12 was boosted by improvement in cement prices as well as volume growth on a sequential basis. Costs remained high during the quarter but higher cement prices led to margin improvement on sequential and yearly basis. Revenues improved by 19 % for Q4FY12 and 37.5 % for the full year FY12 led by improvement in cement realizations and cement dispatches over last year. Operating margin for Q4FY12 and FY12 also witnessed an improvement due to higher prices. Margins stood at 23.7 % and 22 % for Q4FY12 and FY12 respectively as compared to 22.7 % seen during Q4FY11 and 19.2 % for full year FY11. Net profit performance was boosted by healthy revenue growth; lower than expected interest outgo and higher other income. UltraTech (UTCEM) delivered 40 % YoY and QoQ PAT growth to Rs. 860 Cr. EBITDA per MT stood at Rs. 1,018. White cement, wall care putty and RMC revenues, cement realizations for the company stood at Rs. 4,624 per tonne during Q4FY12 and Rs. 4,460 per tonne during FY12 as against Rs. 4,330 per tonne and Rs. 3,746 per tonne during Q4FY11 and FY11 respectively. Combined grey cement and clinker sales volume stood at 11.54MT during Q4FY12 as against 10.37 MT during Q4FY11.  Export cement volumes stood at 0.18MT approx. $55 per tonne and clinker export volumes stood at approximately 0.27MT approx. $45 per tonne. The full year volumes stood at 40.73 MT as against 35.26MT in FY11, registering an improvement of 15.5 % over last year. Volumes are expected to further improve to 44MT for FY13 due to improvement in demand going forward. Domestic cement volumes are expected to be nearly 44 MT for FY13 for the company. White cement volumes are also likely to remain robust going forward and thus revenues of Rs. 20,700 Cr for FY13 is expected also it is expected that the industry cement demand to grow to 8 % and 10 % respectively during FY13 - FY14 vs. 4.5 % and 6.5 % during FY11 - FY12 period led by continued retail demand as well as by pre - general election (in 2014) led infrastructure demand from the end of FY13E. However, industry’s utilization is expected to remain under 80 % until FY14E. It is expected that the pending CCI’s investigation report to remain an overhang on the stock in near term.  

Outlook and Valuation:

Cement sales in India grew by 4.5 % and 6.5 % YoY during FY11 - FY12 period and expected the same to improve to by 8 % and 10 % respectively during FY13 - FY14 vs. 4.5 % and 6.5 % during FY11 - FY12 period led by continued retail demand as well as by pre - general election (in 2014) led infrastructure demand from the end of FY13E. However, industry’s utilization is expected to remain under 80 % until FY14E. Demand in the southern region has buoyed over the last five months- which in turn has helped Ultra Tech Cement’s volume and realisation growth. However, with more than 60 MT of new capacities expected to get commissioned during FY12 - 14E period; it is believed that the industry utilisation to hover below 80 % until FY14E. Cement manufacturers have shown maturity in passing on the incremental cost pressure through supply discipline which is expected to continue over the next few quarters until demand recovers. An estimate EBITDA per MT of Rs. 898 and Rs. 944 during FY13 - 14E is expected. The on-going cement cartelization inquiry by Competition Commission of India (CCI) against about 40 cement companies including Ultra Tech Cements is expected to be completed by this month and CCI is expected to come out with its findings during April – May 2012 and if found guilty of cartelization, cement companies could be fined up to 50 % of their FY12E profits which for Ultra Tech Cements could be around Rs. 1200 to 1300 Crs which would be around 6.5 % to 7 % of its total sales. Ultra Tech Cements is expected to deliver strong EBITDA per MT performance similar to that posted during the current quarter & thereafter the seasonal weakness (monsoon driven weak demand and cement prices) would weigh on the stock performance for the subsequent two quarters. While, it is seen that profitability of Ultra Tech Cements to improve going forward, the current valuation multiples already discounts the same. The clarity on the CCI investigation report should be a major trigger for the stock. In line with the multiples ascribed to its peers ACC and Ambuja Cements, Ultra Tech Cements valuation comes at 9.5 x its FY13 – FY14E EBITDA thereby implying a target price of Rs. 1,566 per share. This price implies a replacement cost of US$ 165 per MT. EBITDA/tonne of Rs. 991 for FY13 translating into EBITDA margins of 22.5 % for FY13 is expected. At current price of Rs. 1368.70, the stock is trading at 15.95 x P/E and 8 x EV/EBITDA on FY13 estimates and one should ACCUMULATE the stock and should use declines in the stock to buy with a long term view with the key risk of the out come from CCI imposing fine on cement companies on alleged cartelization. One can buy Ultra Tech Cement Limited with a target price of Rs. 1,566.00 for Medium to Long term investment.

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	13,316.30	18,313.20	20,077.50	22,693.70
NET PROFIT (Rs. Crs)	1,406.00	2,446.80	2,350.30	2,489.30
EPS (Rs.)	51.30	89.30	85.80	90.80
PE (x)	28.60	16.40	17.10	16.10
P/BV (x)	3.80	3.10	2.70	2.30
EV/EBITDA (x)	14.80	9.40	9.40	8.50
ROE (%)	19.90	20.80	16.90	15.50
ROCE (%)	13.70	14.90	12.60	11.80

I would buy UltraTech Cements LTD with a price target of Rs. 1,566 for Medium to Long term. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 1259.20 on every purchase.

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ULTRATECH CEMENTS - Buy on every dips

Scrip Code: 532538 / ULTRACEMCO

CMP:  Rs. 1033.90; Buy at current levels.
Short term Target: Rs. 1050, LT – Rs. 1150.
Market Cap: Rs. 28,333.16 cr.
52 Week High/Low: Rs. 1163.10 / Rs. 817.3.

Total Shares: 27,40,41,665 shares; Promoters : 17,36,05,057 shares –63.35 %; Total Public holding : 10,04,36,608 shares –36.65 %;

Book Value: Rs. 224.80; Face Value: Rs. 10; EPS: Rs. 51.24; Div: 60 %.P/E: 20.10 times; Ind P/E: 13.67; EV/EBITDA: 14.23. 

Total Debt: Rs. 3,532.12 cr; Enterprise Value: Rs. 65,583.10 cr

UltraTech Cement Ltd was incorporated in the year 2000, based in Mumbai. The company was formerly known as Ultra Tech CemCo Ltd which was changed to Ultra Tech Cement Ltd in October of 2004. It’s a subsidiary of Grasim Industries Ltd from Aditya Birla Group. The Company has an annual capacity of 23.1 million tons. It manufactures ready mix concrete (RMC). The company has 5 integrated plants, 6 grinding units and 3 terminals: 2 in India and 1 in Sri Lanka. It is an exporter of cement clinker to the countries around the Indian Ocean, Africa, Europe and the Middle East. The Company's subsidiaries include Dakshin Cement Limited, UltraTech Cement Lanka (Pvt.) Ltd. and UltraTech Cement Middle East Investments Limited.

Investment Rationale

Expansion on track: As per the company’s long term strategy it is setting up additional clinkerisation capacity by 4.8 MT at Raipur, Chhattisgarh and by 4.4 MT at Malkhed, Karnataka, the combined additional capacity would amount to 9.2MTPA. The capital expenditure on the new clinkerisation plants, grinding units & bulk packaging terminals across various states is estimated at Rs. 5,600 crore. The capital expenditure (capex) will be funded through a mix of internal accruals and borrowings. As per the schedule, the project is expected to come on stream from FY2014. Since the project is expected post FY13 it is not incorporated in the volume growth estimates.

Concerns regarding margin pressure: The cement industry is expected to grow at 8-9% from FY2012 on account of initiatives taken by the government to boost infrastructure, housing activity and also rural development. However, the upcoming capacity will be creating surplus capacity and cement prices are likely to come under pressure. Further, the cost inflation in terms of higher coal prices will also continue to pressure margins in the coming quarters.

Outlook & Valuation: I like Ultratech for its diversified model & its all India presence along with its strong balance sheet. On the acquisition of Star Cement by Ultratech provided an access in growing markets like Bangladesh, Dubai, Sudan, and Bahrain. However, on account of the anticipated pressure on cement prices in the coming one year and in terms of rising coal prices, I see limited upside in the stock price from the current levels, I give Buy recommendation on the stock with a price target of Rs.1, 150. At the current market price, the stock trades at a PE of 20.2x FY2012E. On an EV/EBITDA basis, the stock trades at 9.9x FY2012E.

Result Update: Ultratech Cement’s financials for Q4 & FY11 are not comparable due to merger of Samruddhi Cements with itself. Dispatches stood at 10.68MT for Q4FY11, for full year 2011, it stood at 32.76 MT. Adjusted with white cement, wall care putty and RMC revenues, grey cement realizations stood at Rs. 3,577/ tonne during Q4FY11 v/s Rs. 3,279 in Q3FY11. Blended realizations during Q4FY11 were Rs. 4,204/ ton is much higher than pure grey cement realizations. Margins stood at 22.7% & 19.2% for Q4FY11 and FY11 respectively.  BITDA/Tonne for Q4FY11 stood at Rs. 956. Overall costs continued to remain high due to increase in raw material, coal and freight expenses, so EBITDA/tonne of Rs. 886 is expected for FY12.

KEY FINANCIALS	FY10	FY11E	FY12E
SALES (Rs. crs)	7,049.7	13,209.9	17,114.5
NET PROFIT (Rs. crs)	1,093.2	1,404.2	2,023.7
EPS (Rs.)	87.8	51.2	73.9
PE (x)	11.7	20.7	14.30
P/BV (x)	2.8	2.8	2.3
EV/EBITDA (x)	6.4	11.9	7.7
ROE (%)	26.6	14.3	17.7
ROCE (%)	28.5	14.5	20.1

I maintain my buy status on Ultra tech Cement with the price target of Rs. 1050 in short term. For long term my target is of Rs. 1150. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.