FY18/19 Ebitda estimates down 11/7%; valuation too high vis-a-vis past record
Our analysis of the acquired Jaypee plant assets suggests that these have been operating at a capacity utilisation (CU) between 50% and 65% in FY13-16. Based on Jaypee’s published FY17 results, we estimate the plants were operating at c40% utilisation in FY17. A host of factors suggest CU for these assets will remain below 60% until FY20e. The Street is extremely optimistic on long-term profitability: A reverse DCF for UTCEM suggests the market is pricing Ebitda growth of c15.4% pa between FY17-30e (CAGR). For this, Ebitda/t and volumes would have to grow at a CAGR of 7%, respectively. Analysis of UTCEM’s Ebitda/t over the past 10 years points to Ebitda/t growing at a CAGR of just 1%. Cut Ebitda for FY18/19e; raise TP to Rs 3,350 on higher multiple: We cut FY18/19e Ebitda by 11/7% as we trim volume estimates for core asset and account for 9 months of Jaypee integration in FY18. Ultratech has disappointed on volume growth over the last 2 quarters. Despite our expectation of c24% earnings growth over the next 3 years, UTCEM is trading at a FY19e PE of 28x and EV/Ebitda of 14x. We find valuation excessively high. We believe risk-reward ratio is not conducive and maintain our Reduce rating. We value UTCEM at 13x FY19e EV/Ebitda.