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.

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

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.

ULTRATECH CEMENT LTD ; BUY

Scrip Code : 532538 / ULTRACEMCO

CMP :  Rs.857.95 ; Buy at Rs.840-850 levels

Traget : Rs. 1087

Market Cap : Rs.10,711.1 cr.

52 Week High/Low : Rs.1163.1/Rs.702.8

Total Shares : 124487079 shares; Promoters - 68193101 shares - 54.78%

Book Value : Rs.370.05 ; Face Value - Rs.10; EPS - Rs.73.76;

Enterprise Value : Rs.989.31 per share ;

UltraTech ‘s results for Q1FY11 net realisation declined 4.9% due to its substantial exposure 33% to southern region which was affected by lower off take and shortage of wagons.

The increase in operating expenditure resulted in 1371 basis points YOY decline in operating margins to 23.5% (37.2%) , Going ahead, UltraTech will benefit from its Samruddhi merger % will not face comparatively lower pricing pressure. Post merger UltraTech will have aggregate capacity of 49 million tonne of cement production.. Ultra Tech’s net sales declined 8.1% YOY because of 3.6% decline in dispatches to 5.12 million tonnes. Power cost increased due to higher open market power purchase & reduced coal supply through linkages.

The incorporated post merger number of UltraTech will be 45.3% CAGR in top line over FY10-12 by higher volumes. At current level the stock is trading at an EV/EBITDA of 6.7 times & EV per tonne of $94 on FY 12 estimates.

At an average target of EV/EBITDA of 7 times Ultra Tech’s fair value comes at Rs.1087.

Samruddhi Cements

Share capital (Eq + Prf) – Rs.85 cr

Share Capital Suspense – Rs.45.84 cr.

Reserves & Surplus – Rs.4452.56 cr.

Total Assets – Rs.8562.49 cr.

Total Liabilities – Rs.5217.73 cr.

Investments (Eq) – Rs.4.43 cr.

Investments (Bonds/Mutual Fund) – Rs. 1234.11 cr.

Turnover – Rs.4290.63 cr.

PBT – Rs.941.99 cr.

PAT – Rs.617.96 cr.

UltraTech Cement

Share capital (Eq + Prf) – Rs.124.49 cr

Reserves & Surplus – Rs.4482.17 cr.

Total Assets – Rs.6673.44 cr.

Total Liabilities – Rs.3736.33 cr.

Investments (Eq) – Rs.21.07 cr.

Investments (Bonds/Mutual Fund) – Rs. 1616.68 cr.

Turnover – Rs.7049.68 cr.

PBT – Rs.1588.16 cr.

PAT – Rs.1093.24 cr.

SAMRUDDHI CEMENTS LISTS AT Rs.579.75

NAME - NSE - SAMRUDDHI ; BSE- 533209.

Share Price - Rs.488 ;

Market Cap - Rs.12,770.15 cr ;

Total Debts - Rs.2100 cr ;

52 Week High - Rs.590 ; Low- Rs.477.15 ;

P/E - 00.00 ; EPS - 00.00 ;

Book Value - Rs.175.15 ; Industry P/E - 8.95 ;

Fv - Rs.5.00 ; Dividend - 35 % ;

Total Shares Issued - 26,16,83,571 shares ;

Promoter's Holding - 16,99,99,988 shares ; Promoter's holding in % - 65%

SAMRUDDHI CEMENTS LTD today made its debut at Rs.588 on BSE after its demerger with GRASIM IND

Listing Samruddhi Cement on the bourses is a part of the restructuring process of the cement business of the Aditya Birla group.

The company has listed with 26.16 crore equity shares of face value of Rs 5 each.

Shares of Samruddhi Cement touched a high of Rs 600 and a low of Rs 478.15 on the Bombay Stock Exchange.

On the National Stock Exchange, the scrip listed at Rs 579.75. It touched a high of Rs 590 and low of Rs.477.15.

The company made its listing on the bourses after Aditya Birla Group flagship firm Grasim Industries, last year, approved the demerger of Samruddhi Cement with itself.

As part of the arrangement, the company will be merged with UltraTech Cement on 10 July 2010.

Accordingly, 4 shares of UltraTech would be issued for every 7 shares of Samruddhi.

Each Grasim shareholder had received one equity share of Rs 5 of Samruddhi Cement for every one share held in Grasim, as a part of the scheme.

The merged entity will have an annual capacity to produce 48.8 million grey cement with 22 plants. It will also have 11. 7 million cubic metres of ready mix concrete across 68 plants along with captive thermal power plants of 504 mega watts.

After the completion of the merger, Grasim would hold 60. 3% of UltraTech's expanded equity capital and 39.7 % would be held directly by other shareholders of UltraTech and Samruddhi.

It is to be noted that the Fair Value of Samruddhi Cements is 55 % Ultratech Cements price.

My previous post on this event click - GRASIM IND SAMRUDDHI DEMERGER

Grasim Industries Ltd

I expect the Cement Sector to add around 76mtpa of capacity over FY2010-12E. Such a large capacity addition is expected to eventually create over supply in the market, as demand is not expected to catch up with supply in the short term. Nonetheless, on a positive note, a stable government at the Centre is expected to boost infrastructure spending in the country and, along with the ongoing recovery being witnessed in Real Estate activities, concerns on the demand front appear to have reduced considerably. However, All-India capacity utilisation is expected to drop to 78% in FY2010 from around 85% in FY2009. In the case of Grasim, it is currently in the process of increasing its cement capacity by 4.5mtpa at Kotputli and by 4.4mtpa at Shambhupura, by 3QFY2010E, taking its total standalone capacity to 25.8mtpa in FY2010E. Along with the capacity expansions of 4.9mtpa at Ultratech, the total capacity of the merged entity will touch 48.9mtpa by end-FY2011E. Grasim is India’s sole player in the VSF business and exports a substantial portion of its output. The division, after going through a lean patch over the past one year, due to the overall economic slowdown, has begun to show signs of revival in the current quarter. The company recorded its highest-ever quarterly sales for this division during 2QFY2010, while also achieving the highest-ever operating profit, on account of a substantial reduction in the prices of raw materials such as pulp and caustic soda. The company plans to set up an 80,000MT Greenfield project, at a cost of Rs1,000cr, to meet the growing demand. Going ahead, the volume outlook for this division looks positive, both in the domestic and the international market, although there is little scope for any further price increases, due to a growing price differential between other textile fibers, such as polyester and cotton. We have derived the value of Grasim on an SOTP basis.

I have valued the company’s 65% stake in Samruddhi at an average of an EV/tonne of US $100/Tonne and an EV/EBITDA of 6x FY2011E, based on the de-merger plan. I have arrived at a value of Rs725/share for Grasim’s direct holding in Samruddhi. The value attributable to the 35% stake of Grasim’s shareholders in Samruddhi stands at Rs434/share. We have valued the VSF business at 5x EV/EBITDA, implying a P/BV of 1.75x on an FY2011E basis. I have assigned the valuation multiple based on the VSF business’s superior RoCE as compared to its global peers (which are trading at 3x P/BV, based on CY2010E book value). I have valued the company’s 54.8% stake in Ultratech by assigning a holding company discount of 20%. Hence, our SOTP Fair Value for Grasim works out to Rs2, 548. I upgrade the stock to buy.