Ultratech Cements Ltd (Q4 FY14)

Ultratech Cements Ltd (UCL) revenues stood at Rs58.3bn meeting our estimate.

Apr 28, 2014 11:04 IST India Infoline News Service

CMP Rs2,170, Target Rs1,722, Downside 20.6% 

  • Volume push dents realizations; Supply issues in Northern market arrest further dip in realization

  • Margin improved sequentially by ~5ppts better than our estimate on back of saving in power cost

  • PBT meets estimate at Rs9.7bn (down 10% yoy); higher tax provision in previous quarter translates into lower tax outflow

  • Downgrade to SELL with a revised 9-month price target of Rs1,722

Result table*
(Rs mn) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Net sales 58,319 53,906 8.2 47,864 21.8
Other Operating Inc 1,280 828 54.5 315 306.6
Material costs (9,734) (8,495) 14.6 (8,169) 19.2
Personnel costs (2,352) (2,609) (9.9) (2,443) (3.7)
Power and fuel costs (11,869) (10,559) 12.4 (10,023) 18.4
Freight cost (13,655) (11,955) 14.2 (11,193) 22.0
Other overheads (9,279) (8,294) 11.9 (8,394) 10.5
Operating profit 12,710 12,821 (0.9) 7,956 59.8
OPM (%) 21.3 23.4 (210 bps) 16.5 481 bps
Depreciation (2,785) (2,460) 13.2 (2,645) 5.3
Interest (739) (478) 54.7 (905) (18.3)
Other income 577 1,005 (42.5) 681 (15.3)
PBT 9,764 10,888 (10.3) 5,088 91.9
Tax (1,384) (3,626) (61.8) (1,391) (0.5)
Effective tax rate (%) 14.2 33.3 (1913 bps) 27.3 (1316 bps)
Adjusted PAT 8,380 7,262 15.4 3,698 126.6
Adj. PAT margin (%) 14.4 13.5 90 bps 7.7 664 bps
Source: Company, India Infoline Research, *Standalone

Volume push dents realization; revenue meet estimate

Ultratech Cements Ltd (UCL) revenues stood at Rs58.3bn meeting our estimate. Volume growth of 9%yoy was higher than our expectation of 3%yoy. However, we believe UCL took cuts in pricing to boost volumes during the quarter as average realization stood at Rs4,662/ton down 2.8%qoq on sequential basis against our expectation of a 3% improvement. Other operating income jumped 54%yoy and 306%qoq basis.


Cost analysis
As a % of net sales Q4 FY14 Q4 FY13 bps yoy Q3 FY14 bps qoq
Material costs 16.3 15.5 81.1 17.0 (62.4)
Personnel Costs 3.9 4.8 (82.0) 5.1 (112.4)
Power and fuel costs 19.9 19.3 62.2 20.8 (89.1)
Freight cost 22.9 21.8 106.9 23.2 (32.1)
Other overheads 15.6 15.2 41.7 17.4 (185.4)
Total costs 78.7 76.6 209.8 83.5 (481.2)

Saving in power and other overhead led to ~5ppts sequential jump in OPM

Lower realizations impact was partially offset by jump in other operating income reducing its impact at operational earnings level. OPM for Q4 stood at 21.3% (our estimate of 19.1%), as savings in power and fuel costs (Rs1,092/ton as against Rs1,121/ton previous quarter largely on account of currency appreciation) and other overhead (Rs742/ton as against Rs840/ton in Q3 FY14) boosted margins. Personnel cost stood at Rs188/ton lowest level in previous eight quarters (average personnel cost for last eight quarter stood at Rs243/ton).

Depreciation and interest outgo was higher on back of commencement of new cement capacity and CPP units. PBT stood at Rs9.7bn down 10%yoy, however, higher tax provision in previous quarter translated into lower tax outflow leading to a 15%yoy jump in earnings.  


Earnings revival post H1 FY15; Downgrade to Sell

Construction activity has slowed down Pan-India, impacting realization of all major players (barring north-based players as Binani Cement plant shutdown translated into supply crunch, thereby, improving realization). Cement sector is going through tough times as significant slowdown in demand and supply surplus in most regions are impacting realization negatively. Slackening demand in the peak construction season makes us believe that industry may go through weak phase for the next 2-3 quarters. The sector could possibly see a revival post H1 FY15 on back of a) resumption of investment cycle, post general election b) softening of interest rate and c) demand revival.


We believe current valuations for UCL are stretched considering that slowdown has started to impact margin (FY15 OPM is expected to be at 20% against 5yr average of 24%, thereby, impacting earnings and return ratio). Rupee appreciation along with lower international coal prices could have its limited impact on operational efficiency in the near term. However, UCL at CMP trades at 21x PER FY16E EPS of Rs103, downgrade stock to SELL with a 9-mnth price target of Rs1,722


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E
Revenues 201,749 202,798 213,971 245,073
Yoy growth (%) 11.1 0.5 5.5 14.5
Operating profit 46,753 38,179 42,945 55,840
OPM (%) 23.2 18.8 20.1 22.8
Pre-exceptional PAT 26,559 21,445 20,950 28,353
Reported PAT 26,559 21,445 20,950 28,353
Yoy growth (%) 10.5 (19.3) (2.3) 35.3
         
EPS (Rs) 96.9 78.2 76.4 103.4
P/E (x) 22.4 27.8 28.4 21.0
Price/Book (x) 3.9 3.5 3.1 2.8
EV/EBITDA (x) 14.1 17.3 15.6 11.8
Debt/Equity (x) 0.4 0.4 0.4 0.3
RoE (%) 18.9 13.2 11.6 14.0
RoCE (%) 18.5 12.4 12.1 15.2
Source: Company, India Infoline Research

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