• Volume de-growth translates into flat top-line yoy
• Average realization falls by 3% qoq due to lower white cement dispatches
• OPM contracts by 100bps, better than our estimate on back of lower-than estimated power and freight cost
• PAT de-grew by 16% yoy; interest outgo down 19% yoy
• Maintain Market Performer rating with 9-12 mth price target of Rs1,720

Ultratech Cement Ltd (UCL) revenues remain flat at Rs53.8bn vis-à-vis our expectation of Rs55bn. Stalled government infrastructure projects translated into lower demand for grey cement, which de-grew ~5% yoy against our expectation of 1% drop. Average realization was up 6.1%yoy but dropped 3% qoq (against our expectations of +2% qoq) due to drop in high yield white cement volumes.

Lower power and freight costs restrict OPM contraction to 100bps UCL operating margin contracted by 100bps yoy as against our estimate of 450bps. The operating performance was better than our estimate primarily on account of lower than expected freight and fuel cost. RM and staff costs came in higher than our estimates.

PAT stood at Rs7.3bn, a drop of 16% yoy (against our expectation of 33% yoy decline) as higher margin coupled with lower interest outgo boosted PAT in Q4 FY13. Depreciation stood at Rs2.5bn (up 5.5%) as UCL commenced new capacity during the current year.

UCL plans to commence operation of its 3.3mtpa clinkerisation unit in Karnataka by end of Q1 FY14. This coupled with expansion at Rajasthan (2.9mtpa grinding unit by Q4 FY15) will expand UCL cement capacity to 62mtpa by FY15. We expect slowdown in construction activities to persist till H1 FY14, However, we factor in a demand revival in H2 FY14 on account of election in five states followed by general election scheduled in May 2014. Ultratech trades at a premium compared to its peers like Ambuja and ACC on EV/ton basis. We believe current valuations leave hardly any room for upside and we retain Market Performer with 9-12 month target of Rs1,720.