Ultratech Cement (Q1 FY11) – MP (Target price Rs916, Upside 4.9%)

CMP Rs873, Target price Rs916, Upside 4.9%

• Revenues of Ultratech (UCL) declined by 8.1% yoy in-line with our expectations. This was on account of a) supply surplus resulting into lower realization (decline of ~9% yoy to Rs3,489), b) lower-off take in key southern markets (33% of total revenue) and C) shortage of railway wagons resulting into logistic constraints in western and eastern markets.
  
• UCL’s OPM contracted by 13.7ppts to 23.5%; marginally lower than our estimate of 24.2%. Lower than expected operating performance was on back of higher than expected fuel cost as reduction in coal supply from linkages resulted into higher coal purchase from open market.
  
• Lower margin coupled with higher depreciation resulted in a PAT de-growth of 42% yoy to Rs2.4bn. Effective tax rate stood at 25% as against 33% in Q1 FY10.
  
• We have maintained our estimates and price target (Rs916) but have upgraded our rating to Market Performer from Sell due to recent correction in stock prices.