UltraTech Cement: Recommendation Review

We had recommended UltraTech Cement to our readers in DSIJ Vol 27, Issue # 21 (dated October 7, 2012), when the scrip was trading at Rs 1760. Our call was backed by factors like an improvement on the realisations front, the company’s consistently increasing capacities, a strong and efficient management bandwidth and better valuations. After our recommendation, the scrip witnessed a good up-move and crossed the Rs 2000 levels, amounting to returns of more than 14 per cent.

However, things started to change a bit since January 2013, as infrastructure projects were lagging behind the expected growth estimates. The realty segment was also not growing, as the interest rates remained on the higher side, impacting the completion of earlier projects and the launch of new projects. The direct impact of these factors was seen on this company’s sales volumes. Its financial performance for the December 2012 quarter was below the street’s expectations. Though there was an increase in the topline on a YoY basis, which stood at Rs 4882 crore as against Rs 4650.81 crore in December 2011, the bottomline dropped to Rs 600.81 crore from Rs 616.86 crore in December 2011. Not surprisingly, the scrip witnessed a decline and is now trading at Rs 1844, providing marginal gains of four per cent.

However, we recommend that investors hold the counter at the current levels as infra projects may pick up pace, providing much-needed impetus to the cement sector. Further, the 50 basis points repo rate cut in 2013 may provide some support to the realty segment. Being the largest cement player, UltraTech is expected to be benefited.