Ultratech revenues grew by 17.1% y-o-y to Rs18.75 billion, well above our expectation of Rs17.9 billion.
The outperformance was led by higher-than-anticipated volume growth, on the back of 107% capacity utilization during the quarter. Average realization stood at Rs3,591/ton, an increase of 8% y-o-y, but below our estimate of Rs3,640/ton.
OPM declined by 130bps y-o-y to 29.2% as raw material cost increased 42.5% y-o-y. However, on sequential basis, OPM has improved by material 250bps aided by lower power costs and despite a 165% increase in the raw material cost.
During Q4 FY09, company consumed low-cost coal inventory bringing its power cost down to Rs777/ton representing a decline of 7.5% yoy and 32.6% qoq.
Outlook and valuation
Ultratech is in the process of enhancing its cement and grinding capacity to 23.1mtpa by the end of Q1 FY10.
Management indicated that the grinding unit at Andhra Pradesh Cements Works and Ginigera would be fully operational by the end of the current quarter.
The company has commissioned power capacity aggregating 192MW in FY09 taking its total capacity to 236MW.
We downgrade UCL from market performer to SELL and revised our 1-year target price to Rs498 implying 12% downside.
We now expect UCL profits to fall by 23% in FY10E against previous expectation of 34% fall on account of upward revision in our realization assumptions for H1 FY10.
The stock currently trades at a P/E multiple of 9.3x and 9.9x on our estimated earnings of Rs60.9 and Rs57.2 for FY10E and FY11E respectively. The EV/ton stands at $80 and $76 for FY10E and FY11E respectively.