Event Update

November 16, 2009

Rating matrix
Rating : Strong Buy UltraTech Cement (ULTCEM)
Target : Rs 900
Target Period : 12-15 MONTHS Rs 730
Potential Upside : 23%
WHAT’S CHANGED…
Key Financials PRICE TARGET ............................................................. Changed from Rs 933 to Rs 900
FY08 FY09 FY10E FY11E EPS (FY10E) .................................................................................................. Unchanged
Net Sales 5509.2 6383.1 6959.5 7360.4 EPS (FY11E) .................................................................................................. Unchanged
EBITDA 1720.1 1706.4 2061.9 1752.1
RATING....................................................................... Changed from Buy to Strong Buy
Net Profit 1007.6 977.0 1135.3 967.9

Valuation summary
FY08 FY09 FY10E FY11E Multiple expansions to partly mitigate
EPS (Rs)
PE (x)
80.4
9.1
77.4
9.4
90.0
8.1
76.7
9.5
earnings dilution impact…
Target PE (x) 11.2 11.6 10.0 11.7
EV to EBITDA (x) 6.2 6.0 4.6 4.9 News
EV/Tonne(US$) 125 100 87 80
Price to book (x) 3.4 2.6 2.0 1.7 The board of UltraTech Cement and Samruddhi Cement, a subsidiary of
RoNW (%) 45.2 31.0 27.5 19.0 Grasim Industries, has approved Samruddhi’s merger with UltraTech. The
RoCE (%) 40.7 29.2 29.7 23.0 exchange ratio for the merger was pegged at 4:7 (1:1.75). Samruddhi
shareholders will receive four shares of UltraTech at a face value of Rs 10
Stock data each for every seven shares of face value Rs 5 each. Thus, according to
Stock data
the scheme of the merger UltraTech will issue 14.9 crore new shares.
Mcap Rs9210.4 crore
Debt (FY09) Rs 2142.6 crore Implication
Cash & Invest(FY08) Rs 11319 crore
EV Rs 10213.5 crore The swap ratio of 1:1.75 (as compared to consensus estimates of 1:2) is
marginally negative for UltraTech and marginally positive for Grasim. The
merger is likely to be effected by July 1 2010. Prima facie the merger
52 week H/L Rs 886 / 250 ration appears to be EPS decretive (-8%) for FY11 EPS.
Equity cap Rs 125.2 crore
Face value Rs 10 Our view
MF Holding(%)
5.9
FII Holding(%) 6.0 We believe the impact on the share price will be partly mitigated by
Price movement (Ultra tech vs. Nifty) expansion of multiples. Post restructuring the valuation multiple for
UltraTech will increase due to the following factors:
1,000 6,000

800 5,000 • The merged entity will emerge as the largest player with a
4,000 capacity of 49 MT, more than double the capacity of distinct
600 second and third players, viz ACC and Ambuja in the cement
3,000
400 industry
2,000 • Historically, UltraTech has traded at a discount to ACC and
200 1,000 Ambuja due to lower liquidity. We believe that post restructuring,
liquidity will no longer be a constraint
0 0
Nov-08 May-09 Nov-09 • UltraTech will have a presence in all five major regions, thereby
eliminating regional risk
UltraTech Cement NIFTY The move is unlikely to provide major cost savings in the near term given
that the cement businesses of Grasim and UltraTech are already
Analyst’s name operationally integrated with common branding.
Ravi Sodah
ravi.sodah@icicisecurities.com
Valuation
At the CMP of Rs 730 per, 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.

ICICIdirect.com | Equity Research

UltraTech (ULTCEM)

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

18%

35%

47%

East West South

Source: CMA, ICICIdirect.com Research

Exhibit 2: UltraTech post-merger region wise capacity break up

25% 25%

16%
26%
8%

North Central East West South

Source: CMA, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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UltraTech (ULTCEM)

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
264 258
270
240
210
180
150 134
116
120 100 93
90 73
57 51 49
60 45 39 37 35 35
30
2) Holcim-Swizeland

9) CRH-Ireland
4) Heidelberg- Germany

7)ItalCementi - Italy
3) CNBM-China

5) Cemex - Mexico

8)Taheiyo-Japan

10) AV Birla -India*

1) Lafarge-France

6)Anhui Conch - China

11) Buzzi Unichem - Italy

12) Eiro Cement

13)Cimpor - Portugal

14) Jdong- China

15) Hauxin- China

Source: ICICIdirect.com Research

V a lua t ions
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.

ICICIdirect.com | Equity Research

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UltraTech (ULTCEM)

ICICIdirect.com coverage universe

ACC Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code ACC CMP 736 CY08 7,308.6 62.5 11.8 7.3 25.9 32.8
MCap 14523 Target 790 CY09E 8,048.3 87.9 8.4 5.1 30.1 38.9
% Upside 7% CY10E 8,371.1 64.3 11.5 6.5 19.1 24.8

Ambuja Cements Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code GUJAMB CMP 85 CY08 6,234.7 7.4 11.4 7.0 21.9 27.7
MCap 13399 Target 83 CY09E 6,942.8 8.6 9.9 6.2 21.3 28.3
% Upside -2% CY10E 6,855.5 7.8 10.9 5.4 16.8 22.8

UltraTech Cements Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code ULTCEM CMP 730 FY09 6,383.1 77.4 9.4 6.0 31.0 29.2
MCap 9210 Target 900 FY10E 6,959.5 90.0 8.1 4.6 27.5 29.7
% Upside 23% FY11E 7,360.4 76.7 9.5 4.9 19.0 23.0

Shree Cement Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code SHRCEM CMP 1701 FY09 2,715.0 165.9 10.3 6.4 61.4 33.9
MCap 5928 Target 1845 FY10E 3,594.5 221.2 7.7 3.8 49.2 32.4
% Upside 8% FY11E 3,951.6 208.2 8.2 4.5 32.2 24.3

India Cements Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code INDCEM CMP 104 FY09 3,426.5 17.2 6.0 4.5 17.4 17.0
MCap 2917 Target 105 FY10E 3,926.8 16.4 6.3 3.8 14.6 14.9
% Upside 1% FY11E 4,348.1 12.9 8.0 4.7 10.2 10.6

JK Cement Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code JKCEME CMP 119 FY09 1,496.8 21.1 5.7 5.4 17.7 17.2
MCap 834 Target 155 FY10E 1,778.4 30.1 4.0 3.2 21.0 19.3
% Upside 30% FY11E 2,198.4 29.6 4.0 2.8 17.4 14.3

JK Lakshmi Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code JKCORP CMP 122 FY09 1,224.7 29.2 4.2 3.3 24.2 16.8
MCap 748 Target 160 FY10E 1,460.0 37.5 3.3 2.2 24.4 21.8
% Upside 31% FY11E 1,440.4 30.4 4.0 2.8 16.4 16.0

Dalmia Cements Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code DALCEM CMP 144 FY09 1,753.0 19.6 7.3 5.7 13.1 12.0
MCap 1164 Target 147 FY10E 2,228.1 22.9 6.3 4.0 13.6 11.8
% Upside 2% FY11E 2,919.3 23.3 6.2 3.6 12.2 11.7

Orient Paper & Industries Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code ORIPAP CMP 44 FY09 1,503.2 12.0 3.6 3.4 41.3 43.1
MCap 896 Target 60 FY10E 1,689.5 9.0 4.8 3.6 24.3 26.0
% Upside 38% FY11E 2,143.5 11.8 3.7 2.3 25.6 32.7

ICICIdirect.com | Equity Research

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 UltraTech (ULTCEM)

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.
Strong Buy: 20% or more;
Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor , Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

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