Accumulate UltraTech Cement; target of Rs 4605: KR Choksey

KR Choksey's research report on UltraTech Cement

Net sales stood at INR 65713 mn as against our estimate of INR 65870 mn; up by 20.4% y-o-y and flattish on q-o-q basis. Cement sales volume was higher by 17.5% on y-o-y basis and remained flattish on q-o-q basis standing at 13.14 MT. EBIDTA stood at INR 13513 mn which was up by 17% y-o-y and down 13.4% q-o-q and EBIDTA margin stood at 20.6% as against 21.2% same quarter last year. EBITDA was 13% above our expectations (est. of 11970 mn) on account of higher realizations and lower than anticipated freight costs. PAT stood at INR 4312 mn which was down by 28.3% y-o-y and 51.6% q-o-q while PAT margin stood at 6.6%. Net profit stood 15% higher than estimates (est. of 3760 mn) owing to better than expected operational efficiencies.

Outlook
Currently, the key focus for Ultratech is to achieve cash break-even for JPA assets by Q1FY19E. The acquisition acts as a positive trigger for the company in the long term as it provides scalability and significant increase in capacity share for the company (capacity share in North and Central to increase from 13% to 49% post acquisition). With expected net debt of INR 106223 mn by FY19, the company trades at an EV/ton of $190 and EV/EBITDA of 14.17x. We believe the company will trade at premium valuations compared to its large cap peers on account of a.) significant market share(~20% post acquisition), b.) superior brand, and c.)higher operating efficiencies.  We maintain our ACCUMULATE rating on the stock with a target price of INR 4605 (assigning EV/EBITDA of 16x on FY19E) which is an upside of 14.2% from CMP of INR 4034.

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