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HDFC Research
UltraTech Cement (Buy)
CMP: ₹2,673
Target: ₹2,780
UltraTech Cement’s (UTCL) Q4FY15 revenue came below street expectations as the volume was low. However, Ebitda was marginally better on lower energy cost. Ebitda/tonne stood at ₹1077/t improved sharply by 44 per cent on sequential basis (led by about 4 per cent increase in realisation and about 9 per cent decline in energy cost). Going ahead, there could be near-term weakness in demand and prices owing to sluggish rural demand. Logistic cost could moderate hereon with new grinding units, jetty at JPA Gujarat, bulk terminal in Pune start operating.
UTCL, being the largest cement company with 71 mt of domestic capacity by FY16 and pan India presence, offers the best play on structural demand recovery. UTCL is well positioned to tap the increase in demand for building materials, be it through demand from the infrastructure segment or from the housing segment. A sharp increase in cement prices in the south and west, and a decline in raw material costs mainly diesel and petcoke could result in better profits and margins in the coming quarters.
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