UltraTech Cement’s (UTCL) Q1FY16 ebitda of R1,150 crore (up 10% y-o-y) was in line with our estimate. Volume growth of 4% y-o-y and realisation decline of 3% q-o-q were also in line. Lower-than-estimated fixed cost helped offset the q-o-q marginal rise in variable cost/tonne. Ebitda/tonne at R928 rose 6% y-o-y. Factoring the current weakness in demand and prices (all India average prices dipped ~4% q-o-q and expected to stay under pressure in Q2FY16 owing to monsoon) we lower our FY16e ebitda ~8%. However, we remain optimistic on demand recovery from H2FY16 and, hence, broadly retain our FY17e. While the sector outlook of expected demand revival and slowing capacity additions remains positive, the stock seems to be fully pricing in potential benefits of the same.
While our industry view—expected demand revival and slowing capacity additions—remains positive, at CMP, we view the risk-reward as unfavourable. Our existing FY17 ebitda estimates (of 11% volume growth and ebitda/tonne of R1,438, up 31% y-o-y) are ~10% ahead of consensus, offering limited scope for any upside revision. We continue to value the stock at a near peak multiple of 11x FY17e EV/ebitda versus the current 11.7x, yielding target price of R3,170. We downgrade to ‘hold/sector performer’ from ‘buy/sector outperformer’.