MOSL: ULTRATECH CEMENT (Buy)-Asset creation by way of JPA acquisition permanent-Earnings dilution transitory
​ULTRATECH CEMENT: Asset creation by way of JPA acquisition permanent; Earnings dilution transitory; maintain Buy
(UTCEM IN, Mkt Cap USD18.0b, CMP INR4218, TP INR4936, 17% Upside, Buy)
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-UTCEM's clinker capacity addition over the next two years (FY17-19) would be similar to the clinker capacity added over the last six years (FY11-17). The JPA acquisition has significantly reduced lead time for asset creation and market share enhancement.
-FY19E EV/tonne adjusted for JPA's assets and Dhar expansion appears moderated by over 20%, implying reduction in the ~50% premium over peers' EV/tonne to 25-30%.
-UTCEM has achieved strong cost efficiency parameters in power & fuel and freight cost for standalone operations. We believe the cost curve for JPA would also improve meaningfully post takeover by UTCEM.
-JPA's acquisition is likely to result in PBT dilution of ~19% in FY18 and ~8% in FY19; we expect the acquired assets to break even in 1HFY20. While the earnings dilution is transitory, the asset creation is permanent and would add to UTCEM's long-term competitive advantage. We reiterate Buy.
UltraTech Cement Limited is engaged in the business of cement and cement-related products. The Company manufactures a range of products that cater to construction needs from foundation to finish, including Ordinary Portland Cement (OPC), Portland Blast Furnace Slag Cement (PSC), Portland Pozzolana Cement (PPC), white cement and white cement-based products, ready mix concrete, including specialty concrete, building products, such as aerated autoclaved concrete (AAC) blocks and joining mortars and a host of others in retail formats. Its geographical segments include India and Rest of the World. The Company focuses on various areas, including alternative fuels, waste heat recovery systems, carbon dioxide emission reduction, waste management, water re-cycling and bio-diversity management. It has over 10 integrated cement units, approximately 10 grinding units, a white cement unit, a wall care putty, over five bulk terminals and over 100 ready mix concrete units.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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