Ultratech Cement (ULTCEM)

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UltraTech (ULTCEM) ICICIdirect.com | Equity Research To emerge as a pan-India player As of now, UltraTech has a presence only in the western, eastern and southern region. Post restructuring, UltraTech will gain a presence in the other two regions, viz. northern and central region, thereby eliminating the regional risk as the quantum and timing of the decline has historically been different for different regions. Exhibit 1: UltraTech pre-merger region wise capacity break up 35% Source: CMA, ICICIdirect.com Research 18% 47% East West South Exhibit 2: UltraTech post-merger region wise capacity break up 25% 26% Source: CMA, ICICIdirect.com Research 8% 25% 16% North Central East West South Page 2
UltraTech (ULTCEM) ICICIdirect.com | Equity Research To emerge as a global giant The merged entity will emerge as the largest player in India with a capacity of 49 MT, more than double that of ACC and Ambuja. The merged entity will be bigger than the entire Pakistan cement industry (44 MT) put together and among the top 10 cement giants in the world. As of now, global cement players are trading at double the P/E multiple commanded by UltraTech despite having lower return ratios. Given the lower liquidity of UltraTech, ACC and Ambuja have so far been preferred companies with institutional investors who were looking for an exposure to the Indian cement sector. The new consolidated entity can potentially provide investors with another pure cement play in India. Exhibit 3: Global cement giants 300 270 240 210 180 150 120 90 60 30 264 258 1) Lafarge-France 2) Holcim-Swizeland 134 3) CNBM-China 116 4) Heidelberg- Germany Source: ICICIdirect.com Research Valuations 100 93 5) Cemex - Mexico 6)Anhui Conch - China 73 7)ItalCementi - Italy 57 51 49 45 39 37 35 35 Though prima facie the swap ratio appears to be EPS decretive, the full impact of the same is largely going to be mitigated by the expansion in the multiple on account of reduction in the regional risk, improvement in liquidity (driven by increased free float) and increase in size. At the CMP of Rs 730 per share, the stock is trading at 8.1x and 9.5x its FY10E and FY11E earnings, respectively. It is trading at an EV/tonne of $87 and $80 its FY10E and FY11E capacities, respectively. We are assigning a STRONG BUY rating to the stock with a price target of Rs 900 per share. 8)Taheiyo-Japan 9) CRH-Ireland 10) AV Birla -India* 11) Buzzi Unichem - Italy 12) Eiro Cement 13)Cimpor - Portugal 14) Jdong- China 15) Hauxin- China Page 3
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