No surprises in the performance
Healthy realisation growth of ~ 13% YoY to Rs4,198/tonne and a 4% YoY jump in volume (including clinker and exports) to 9.29 mn tonnes were the key drivers of UTCEM's 2QF13 performance. Strong performance YoY from the White cement (including putty) and RMC segment further helped the revenue growth. The PAT jumped by 97% YoY to Rs5.5bn (our estimates of Rs5.51bn) and the EBIDTA/tonne nearly doubled YoY to Rs1,114/tonne from a lower base. Cost pressures from raw material (+21.9% YoY) and power & fuel expenditure (13.0%) had an impact on the EBIDTA growth. The other expenditure rose by 6% due to the higher maintenance and repairs cost during the quarter. The total cost/tonne increased by ~ 7% to Rs3,974/tonne in 2QF12. The performance however was relatively weak QoQ compared to other peers as realisations were flat and volume slumped ~ 10%.Earnings estimates revised: Better than expected realization gain during the weak monsoon quarter due to late monsoon arrival has helped UTCEM's strong 1HF13 performance (also partly due to a weak base). However we expect only marginal movement in the realization given the likely focus on improving utilization in the 2HF13. Additional capacities in F14 will only add to the pressure on improving/maintaining the utilization rates. Despite the robust demand growth expected during the election year (F14) we expect only marginal increase in the realization (also to factor a higher base of F13). We have revised our earning estimates for F13/F14 by 15-16% to Rs107.8/Rs121.7 respectively. This is to factor the strong 1H performance in F13 and jump in volume in F14. Our EBIDTA margins estimates continue to hover ~ 25% in F13/F14.
Valuation and recommendation: We are rolling over our target price to F14E. The guidance by UTCEM indicates ~ 10 mn tonnes additional capacity addition in F14 (1H). We have factored the same in our valuations based on replacement cost method including additional debt. Accordingly the stock trades at ~190 EV/tonne which we feel is at a premium despite taking into account the contribution from the high margins business from white cement segment (including putty) and its pan-India presence. We have assigned a 25% premium to our base replacement cost assumption of $120/tonne and we have arrived at the target price of Rs1,572 based on F14-end capacities. The stock trades at a P/E of 14.0x and EV/EBITDA of 7.7x F14 at our target price based on revised earnings estimates.