‘Accumulate’ on Ultratech Cement with a TP of Rs 4,359

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Updated: December 29, 2018 3:20:05 AM

UNCL, a 100% subsidiary of UltraTech (UTCEM), has a grinding capacity of 6.25mt and a clinker capacity of 4.59mt in north India.

The business has footprint in the east, central and west regions.

Following the acquisitions of UltraTech Nathdwara Cement (UNCL), formerly known as Binani Cement, and the cement business of Century Textiles, UltraTech Cement’s capacity in India will reach 113mt, or 23% of the installed capacity in India.

UNCL, a 100% subsidiary of UltraTech (UTCEM), has a grinding capacity of 6.25mt and a clinker capacity of 4.59mt in north India. Post acquisition, UTCEM’s capacity in north India increased to 23.8mt, capacity share of 22% in the region.

The acquisition of Century Textiles’ 14.6mt cement capacity is expected to get completed in Q4FY19. The business has footprint in the east, central and west regions. After this transaction, UTCEM’s capacity share in the west/central regions will be at 44%/40%. We are factoring in these acquisitions into our estimates (combined EPS dilution of 10% in FY20E) and are moving to consolidated financials now. We estimate an Ebitda CAGR of 15.5% between FY18 and FY21E. We maintain our ‘Accumulate’ rating on the stock, with a revised target price of Rs 4,359.

UTCEM has acquired UNCL and made it a wholly-owned subsidiary. The assets, acquired for a total consideration of Rs 80.3bn, include a 4.85mt integrated unit, a 1.4mt split grinding unit in Rajasthan, and a 70-mw thermal power plant. International assets include 2mt clinker and 0.3mt cement capacity in China and 2mt grinding capacity in Dubai. This acquisition will increase UTCEM’s regional capacity to 23.8mt from 17.5mt, enhancing its market share in north India. We believe this acquisition will be earnings-dilutive in the near term, and UTCEM may look to expand the plant’s capacity going forward.

Century’s cement business include grinding capacity of 4.8mt in Maharashtra, 4.2mt in Madhya Pradesh, 2.4mt in Chhattisgarh, 2mt grinding unit in West Bengal and 1.2mt grinding unit in the west region for which statutory clearance has been received. The acquisition will be in the form of the issuance of 1 share of UTCEM for every 8 shares held in Century Textiles, which will result in a 5.1% increase in UTCEM’s share capital.

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