Friday, April 1, 2016

UltraTech Cement (Hold) CMP: Rs.3,204.45;Target: Rs.3,352

UltraTech Cement is the largest manufacturer of grey cement, ready mix concrete (RMC) and white cement in India. It is also one of the leading cement producers globally. UltraTech as a brand embodies ‘strength’, ‘reliability’ and ‘innovation’.

We maintain our estimates as we have not factored in the consolidation which requires corporate and regulatory approvals first. We currently estimate about 9 per cent volume CAGR during FY15-18E led by the recent expansions and acquisitions. Operating profit margins are is expected to improve to Rs.1,138/t by FY18E from Rs.850/t in FY15 (led by improvement in realisation, moderation in costs and operating leverage benefits) We believe that UltraTech would continue to outperform operationally its large-cap peers.

Acquisition of Jaypee’s 21.2 mt capacity would augur well for UltraTech in terms of gaining market shares in its selling markets, growing faster than industry and saving capital cost. Though balance sheet is expected to get stretched post the consolidation (FY18E debt/EBITDA would increase to 2.9x from 1.0x at present), we believe that RoCE would improve over a period of time. Downgrade to ‘hold’ because of recent run-up in stock.

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