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Stock Recommendation: Ultratech Cement — Sell — TP Rs 2,950
Publish Date: 19th July, 2018
Good volumes, weak margins
Ultratech reported strong sales volume growth but its operating margins diminished due to rising fuel and freight costs. While the earnings were in line with our estimates, the company’s net income declined sharply due to low profitability of its acquired assets.
Key Highlights
- The company’s earnings: Revenues were up by 31% yoy, EBITDA increased slightly by 4% yoy, but net income slumped by 33% yoy.
- Acquisition of assets drove domestic volumes by 33% to 16.8 million tonnes.
- The acquired Jaiprakash assets is expected to break-even by April to June 2019.
- We expect the production capacity to increase due to two expansion projects and acquisition of Century’s assets.
- The company’s working capital increased to Rs 7.5 billion and the net-debt position improved by Rs 2 billion (qoq).
Valuation & outlook
We feel the company’s earnings can be dilutive for a while. Its stock valuation also remains on the expensive side.
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