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.