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Centrum Equity
UltraTech Cement (Hold)
CMP: Rs 1,950.35
Target: Rs 1,813
We retain ‘Hold’ rating on UltraTech Cement with a revised price target of Rs 1,813 (earlier: Rs 1,968) considering a) significant disappointment in current quarters’ results; b) downward revision of 13.4 per cent/9.7 per cent in FY14E/FY15E EPS estimates; c) expensive valuations post sharp run-up in the stock price in the last 45 days; and d) chances of further downgrades if cement despatches do not pick up in 2HFY14.
The result was a significant disappointment to us with the company reporting operating profits of Rs 660 crore (versus estimated Rs 900 crore) and OPM (at 14.7 per cent (versus estimated 19.9 per cent) primarily due to a) higher other costs owing to increase in repairs and maintenance cost; and b) higher employee expenses. Blended EBITDA/ tonne was at Rs 710 versus estimated Rs 921. Though we expect earnings to improve significantly in 2HFY14E led by recent price hikes and volume recovery, the current valuation at 9.8x FY15E EV/EBITDA looks stretched.
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