Share Trading Tips

ULTRATECH CEMENT
Reco price: Rs 824.75
Current market price: 772.85
Target price: Rs 890
Upside: 15.2%
Brokerage: Macquarie Research

UltraTech Cement posted better-than-expected results, led by a lower-than-expected drop in realisation. For September 2009 quarter, it reported a 10 per cent y-o-y rise in net sales, driven by an improvement of 6.5 per cent in volume and a 3.5 per cent in realisations. EBITDA was up 58 per cent y-o-y, due to lower power and fuel costs. Net profit at Rs 250 crore was up 53 per cent y-o-y.

Cement prices have been on a decline since late-August 2009, due to some oversupply and slower demand. Thus, realisation could drop sequentially by about Rs 200 per tonne December quarter. However, costs should also drop by a similar amount as economies of scale return with higher volumes and lower maintenance costs. Its blending ratio is one of the lowest (1.26 compared against industry average of 1.36) and its proposed grinding unit should help it to narrow the gap and reduce costs. UltraTech is also planning to add waste heat-based power plants to lower its power cost.

The proposed merger with Grasim’s cement vehicle, Samruddhi, will make UltraTech the largest pure-cement company in the country, with combined capacity of 47 million tonne. It would also become more diversified geographically and should re-rate. Valuations remain compelling at an EV per tonne of around $100 and PE of 8.4 times its 2009-10 earnings.