BackSharekhan recommends UltraTech Cement
Sharekhan recommends UltraTech Cement
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For Q1FY2010 UltraTech Cement (UltraTech) has reported a net profit of Rs417.8 crore, as against our estimate of Rs333.6 crore. The net profit for the quarter improved 57.6% year-on-year (y-o-y).
The revenue grew by 30.5% y-o-y to Rs1,952.8 crore driven by 24.4% increase in volume to 5.3 million metric tonne (MMT; domestic and export) and 5% y-o-y increase in the blended realisation to Rs3,678 per tonne.
The operating profit margin (OPM) improved by 690 basis points to 36.7% largely due to increase in the blended realisation and decrease in the power & fuel cost (down by 20.1% y-o-y to Rs722 per tonne) on account of sharp correction in imported coal prices.
The other expenditure decreased by 4.5% to Rs245.4 crore. On a sequential basis the OPM improved by 805 basis points.
During the quarter, the company commissioned residual cement capacity of 1.2MMT at Andhra Pradesh Cement Works (APCW), which enhanced the overall cement capacity of the company to 23.1MMT.
The blended realisation of Rs3,678 per tonne in Q1FY2010 increased by 5% y-o-y and 7.6% q-o-q. The earnings before interest, depreciation, tax and amortization (EBIDTA) per tonne improved by 29.3% y-o-y and 37.8% q-o-q to Rs1,350.
Valuation
We are upgrading our earnings estimates for FY2010 and FY2011 by 16% and 8% respectively mainly to factor in higher-than-expected blended realisation and volume growth.
The revised EPS for FY2010 comes to Rs87.2 and for FY2011 it comes to Rs67.5. At the current market price of Rs776 the stock trades at a PE of 11.5x, an EV/EBITDA of 5.4x FY2011 earnings estimate and an EV/tonne of $78 on expanded capacities of 23.1MMT for FY2011.
We are also upgrading our recommendation on the stock from Hold to BUY with a revised target price of Rs850 (EV/tonne of $87 on expanded capacities, which is at 13% discount to replacement cost of $100).
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