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UltraTech Cement 3QFY2012 performance highlights and results update

Contributed by Angel Broking

By Angel Broking

During 3QFY2012, UltraTech Cement (ULTC) posted strong 93.4% yoy growth in its bottom line on account of substantial 16.4% yoy growth (up 6% sequentially) in blended realization. Domestic dispatches (incl. clinker and white cement) rose by 6.2% yoy to 9.97mn tonnes. During the quarter, ULTC’s bottom line was boosted by Rs.66.6cr of subsidies relating to previous years in terms of state investment promotion scheme. We remain Neutral on the stock.

OPM up by 284bp yoy: During 3QFY2012, ULTC’s net sales grew by 23.1% yoy to Rs.4,572cr, primarily on account of higher realization. The company’s blended realization improved by 16.4% yoy to Rs.4,313/tonne. However, the company faced margin pressure on account of higher power and fuel (P&F) and freight costs. Per tonne P&F costs rose on account of costlier domestic and imported coal. While the cost of domestic coal was higher on a yoy basis due to price hike carried out by Coal India in February 2011, imported coal costs increased because of INR depreciation. Despite cost pressures, strong realizations resulted in a 284bp yoy expansion in OPM to 22.4%

Outlook and valuation: We expect ULTC to post a 22.4% CAGR in its top line over FY2011-13, aided by higher volumes (also FY2011 financials included only nine months of Samruddhi’s operations). Going ahead, we expect ULTC to face cost pressures due to the new calorific value-based pricing system introduced by Coal India. At current levels, the stock is trading at EV/EBITDA of 7.3x on FY2013 estimates, which we believe is fair. Hence, we continue to maintain our Neutral recommendation on the stock.