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Ultratech Cement Ltd (updated - 22 July 2009)
As expected, cement major UltraTech Cement has turned in an excellent set of numbers for the June 2009 quarter with revenues up a smart 31 per cent to Rs 1,953 crore. Revenues were driven by a huge 24 per cent jump in volumes (domestic volumes were up 17 per cent) and better realisations.

The bottom line growth of 58 per cent to Rs 418 crore has been driven by a better operating profit margin (OPM), which is up nearly 700 basis points year-on-year to 36.7 per cent. While the increase in OPM has been the result of rise in revenues, a slightly smaller power and fuel bill and a small drop in other expenditure have helped.

Having completed its expansion programme, Ultra Tech’s cement capacity is now 23.1 million tonnes. As a consequence, the company’s volumes may grow about 10 per cent this year and beat the industry average, expected to be 9 per cent. However, UltraTech has a relatively higher exposure to southern and western markets, where prices could come off later in the year. Industry watchers expect a surplus in the market towards the second half of 2009-10 - estimated at 40 million tonnes - and believe that prices, which have held ground fairly well so far, could drop by about 10 per cent.

As such, UltraTech’s revenues for the current year are expected to be in the region of Rs 7,000 crore over Rs 6,564 crore posted last year. In 2008-09, the company’s OPM contracted due to cost pressures - UltraTech imports a large part of its coal requirements - despite it seeing better realisations. Energy costs will be lower this year because the company will use more captive power, which is cheaper, and prices of coal have fallen. That should ensure operating profit growth of 9-10 per cent. At Rs 776, the stock trades at just under 10 times its 2009-10 estimated earnings.
source - BS

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Ultratech Cement Ltd (updated - 23 April 2009)
The Ultratech stock has rallied by about 60 per cent in the last six months defying the Street’s apprehensions that cement stocks would do badly in an economic downturn. Even now industry watchers continue to belief that supply of cement will outstrip demand in the next six to eight months keeping prices under pressure. However, there has been no let up in prices yet; on the contrary, prices have firmed up in certain pockets. And volumes have been fairly robust.

That shows in Ultratech’s numbers for the March 2009 quarter which have been reasonably good with net profits up 9.4 per cent y-o-y driven by a double digit increase in volumes and lower prices of coal. In the current year, analysts are expecting Ultratech to turn in revenues of close to Rs 7,000 crore an increase of just under 10 per cent. However, net profits are expected to be in the region of Rs 1,100 crore, a rise of about 12 per cent over last year. That’s because the EBITDAmargin(earnings before interest tax and depreciation) is expected to improve by about 100 basis points over the 26.7 per cent posted last year.

The average price of coal is already lower than what is was in the March 2009 quarter to around $85 per tonne and that should help bring down costs considerably. So even if the growth in sales is somewhat subdued, the company should be able to protect its margins.

At Rs 567, the stock trades at around 6 times estimated 2009-10 earnings and is not expensive. However, the environment is expected to stay challenging; the risk of oversupply remains high points out Merrill Lynch. Cement despatches for the industry were up 8.3 per cent in 2008-09 indicating that while the real estate sector may not be using much of the commodity, there is undoubtedly a lot of construction taking place across the country. However, for the current year demand is expected to rise by just about 7 per cent.
source - BS

Ultratech Cement Ltd (updated - 17 Oct 2009)
UltraTech’s volumes rose just 4.5 per cent in the September 2009 quarter as a result of which net sales were up just 10.4 per cent year-onyear at Rs 1,541 crore. Nevertheless, the profit before interest, depreciation and tax rose asharp 54 per cent. That was partly because the company managed to save on variable costs such as fuel and used more power from captive thermal power plants.

It’s evident that demand in a couple of key markets in the southern part of the country isn’t strong enough to absorb the supply. If one compares these on a sequential basis, UltraTech’s numbers are somewhat disappointing — revenues in the June quarter were Rs 1,953 crore and had risen a smart 31 per cent year-onyear, with the growth driven by a sharp rise in volumes of 24 per cent.

In fact, industry watchers have been pointing out for quite some time now that the supply of cement would outstrip demand, resulting in a softening of prices across the country.

An estimated 75 million tonnes of capacity is expected to come on stream during 2009-10 and 2010-11 on the back of about 29 million tonnes having been added last year. As a result, prices are expected to come off by about 7-8 per cent in 201011 and industry watchers say they should bottom out only sometime in the middle of 2011-12.

Meanwhile, demand is expected to grow at around 9 per cent this year and at a slightly higher rate next year, driven by the infrastructure sector and in line with the compounded annual growth between 2004-2009 of 9.3 per cent. Having completed its expansion programme, UltraTech’s cement capacity is now 23.1 million tonnes and has a relatively higher exposure to the southern and western markets, where prices could come off later in the year. The company is expected to post revenues in the current year, of around Rs 7,000 crore, over the Rs 6,564 crore posted in 200809. In 2008-09, the company’s operating margins contracted, thanks to cost pressures, but lower energy costs should ensure that operating profits grow by about 10 per cent this year.

Of course, the cement business of Grasim will be merged with UltraTech and the merger ratio will, to some extent, determine how the stock behaves. Currently, at Rs 825, UltraTech trades at over 10 times estimated 2009-10 earnings.

It’s possible the merger ratio will favour Grasim’s shareholders because its capacity is higher at 26 million tonnes and besides, it also has a profitable white cement business. The merger by itself won’t really result in any significant cost savings, since both businesses belonged to the same management and were operating efficiently. But a bigger balance sheet would allow for faster growth, both through the organic and inorganic routes.
source - BS

Ultratech Cement Ltd (updated - 17 Nov 2009)
Historically both Grasim and UltraTech have, more often than not, traded at adiscount to their peers in the cement industry; ACC for instance has typically traded an EV/Ebitda (enterprise value to earnings before interest, tax and depreciation) of around 9times whereas Grasim has traded at close to 6 times.

The merger of the cement business of Grasim (now housed in a subsidiary in Samruddhi) with UltraTech transforms Grasim into a holding company which might attract a discount, albeit not a large one since it will have a fairly large 60 per cent stake in India’s biggest cement company.

However, the merger should result in a rerating for UltraTech, which would have a cement making capacity of close to 49 million tonnes per annum and a market capitalisation of around Rs 20,000 crore.

UltraTech, analysts estimate, should post net sales of close to Rs 16,250 crore and a net profit of Rs 2,200 crore in 2010-11. With concerns of the Aditya Birla group’s cement businesses being housed in different entities now no longer valid, UltraTech should command better valuations, closer to those of ACC and Ambuja Cements which currently command $120-$130 a tonne.

Meanwhile, even if the swap ratio announced for the merger of Samruddhi with UltraTech is not highly accretive for UltraTech shareholders, it will not be dilutive and at worst could be neutral say analysts.

Shareholders of Samruddhi will get four share of UltraTech for every seven shares held and if the ratio reflects a slightly higher valuation of $109 a tonne for Samruddhi compared with an implied valuation of $90 a tonne for Ultratech, industry watchers say it’s probably because Samruddhi is marginally more profitable than UltraTech and slightly bigger too.

The merger helps Ultratech as it will now have a pan-India presence, reducing its dependence on the southern markets. There isn’t much synergy expected post the merger since both Grasim and UltraTech were being run efficiently by a common sales and marketing team and much of the cement was being sold under the UltraTech brand.

The UltraTech stock, which has been underperforming the markets in recent weeks with investors unsure about the merger ratio, rose 1.5 per cent on Monday to close at Rs 740.

While the stock may not be expensive compared to peers, the general outlook on cement prices, which are expected to remain soft in the wake of excess supply, may keep the stock subdued.