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UltraTech Cement 3QFY13 results update

Contributed by Nirmal Bang

UltraTech Cement’s (UCL) 3QFY13 operating performance was better than our as well as Bloomberg consensus estimates. EBITDA of Rs10.2bn (up 7% YoY) was above our estimate by 12% and above 7% from Bloomberg consensus estimate led by lower cost inflation compared to expectations. PAT of Rs6bn was above our estimate by 15% primarily driven by better operating performance. We have revised our earnings estimates by 1% and 8% for FY13E and FY14E, respectively, following the change in sales volume, price realisation and interest cost estimates. We have rolled over our target multiple based on FY15E earnings from FY14E earlier. Consequently, we have upgraded our rating on UCL from Sell to Buy and raised our target price from Rs1,496 earlier to Rs2,252.

Net sales primarily driven by higher realisation: UCL reported a rise in net sales by 6% to Rs48.5bn, (in line with our estimate and 3% above Bloomberg consensus estimate) primarily driven by robust growth in blended cement realisation by 9.5% YoY (down 3.3% QoQ) at Rs4,892/tn. Total cement sales volume (including clinker) declined 2.9% to 9.9mt comprising 9.6mt cement sales and 0.3mt clinker sales.

Operating performance better than expectations: The company posted EBITDA of Rs10.2bn (up 7% YoY) while EBITDA margin improved by 20bps to 21.1%. Power and fuel costs declined by 6% QoQ to Rs1,090/tn led by the fall in imported coal prices. Other expenses declined by 8% QoQ driven by better operating leverage. Freight costs increased 6.6% QoQ to Rs1,066/tn, primarily due to hike in diesel price. Overall expenses were up by Rs334/tn against incremental realisation of Rs423/tn. Hence, EBITDA/tn increased by 9.4% to Rs1,031/tn.

Higher other income leads to higher net profit: Net profit was above our estimate by 15% at Rs6bn, primarily driven by higher operating profit. Other income declined by 33% to Rs965mn due to inclusion of Rs666mn of subsidy income from state investment promotion scheme (SIPS) pertaining to earlier years in 3QFY12. Interest costs rose by 85.3% YoY to Rs521mn net of subsidy of Rs164.3mn in terms of SIPS.

Capex plan on track: The company’s planned capex for increasing its cement capacity by 9.2mt with a 120MW captive power plant is on track and their completion is expected in 1HFY14E. This will increase overall cement capacity to 62mt.

Rating upgrade from Sell to Buy: We have upgraded our rating on UCL from Sell to Buy following rollover of our target multiple based on FY15E earnings from FY14E earlier. On completion of incremental 9.2mt capacity, UCL is expected to report better volume growth than its peers, thereby leading to EBITDA CAGR of 18% over FY12- FY15E. Our target price is based on EV/EBITDA multiple of 9xFY15E estimates, close to the average of its historical range in the past seven years (earlier average was 8.5x).