UltraTech Cement target price pegged at Rs 4906; Motilal Oswal says it implies 20 pct upside

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Published: October 24, 2017 6:08:50 AM

Volumes rose 18 % y-o-y to 13.14mt. Blended realisation increased 4% y-o-y to Rs 5,001/tonne due to healthy pricing in its focus markets.

UltraTech Cement, UltraTech Cement stocks, UltraTech Cement market share, UltraTech Cement share, UltraTech Cement business, UltraTech Cement profit, JPA assets, UltraTech Cement revenue, UltraTech Cement loss, UltraTech Cement EBITDAEBITDA thus increased 24% y-o-y to Rs 13.5 billion, translating into EBITDA/tonne of Rs 1,028 and margin of 20.6%. (Image: Reuters)

Q2FY18 revenue rose 22% y-o-y to Rs 65.7 billion, as volumes grew 18% y-o-y due to acquisition of JPA assets. Volumes rose 18 % y-o-y to 13.14mt. Blended realisation increased 4% y-o-y to Rs 5,001/tonne due to healthy pricing in its focus markets. Grey cement realisations rose 7% y-o-y to Rs 4,452/tonne due to improved pricing across most markets. Power and fuel cost per tonne rose 14% y-o-y due to the impact of higher petcoke and coal prices. Freight cost increased 4% y-o-y due to a 7% y-o-y rise in diesel prices, partially offset by lead distance reduction.

EBITDA thus increased 24% y-o-y to Rs 13.5 billion, translating into EBITDA/tonne of Rs 1,028 and margin of 20.6%. Rebranding exercise for acquired assets is complete, with pricing at par with UTCEM. Petcoke has been consumed at the rate of $90/tonne v/s spot rate of $105/tonne. Industry growth for Q2FY18 would be in low-single-digit. Grey cement realisations were flat q-o-q.

While in the short-term, the acquisition of JPA would be earnings-dilutive, we believe addition of 31% of present capacity at virtually zero lead time is critical for a large-scale player like UTCEM to retain market share. Expanded capacity would give it an edge, when there is an upturn. We value the stock at FY20E EV/EBITDA of 14x. Our TP of Rs 4,906 implies 20% upside.

Volumes for 2QFY18 increased 18% y-o-y to 12.84 mt due to the ramp-up of JPA assets. Volumes (including white cement and putty) increased to 13.14 mt. Pricing improvement was better than expectation at Rs 5,001/tonne q-o-q due to firm prices across most of its focus markets. Grey cement realisations were flat q-o-q. Thus, revenue for Q2FY18 increased 22% y-o-y to Rs 65.71 billion.

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