>Ultra Tech Cement (ICICI Securities)

*Delay in production ramp-up in Tadipatri. UTCL’s 4.9mnte Tadipatri expansion was announced in March ’08. However, while the clinkerisation unit was operational, grinding units took longer to get operational. The spit grinding unit at Karnataka has already been commissioned in Q2FY09 and the grinding unit at the mother plant is likely to be commissioned as of end-Q4FY09. Consequently, we have reduced our FY09E volume estimates from 17.3mnte to 15.9mnte.

*Higher net realisations from excise cut. In FY09, so far UTCL has witnessed higher-than-expected realisations, mainly due to better prices in the South. While, we expect FY10E average gross realisations to decline 5%, the Government’s decision to cut excise rate from 12% to 8% would help offset the impact of pricing pressure during the year.

* Sharp rise in fuel costs. UTCL relies on imported coal for ~40% of its fuel requirement. Imported coal prices peaked in Q2FY09 to ~US$190/te, after which they have softened. However, the benefit from coal price correction would accrue only Q4FY09 onwards. Hence, we have assumed 65% rise in coal costs for FY09E versus 40% earlier. For FY10E, we have assumed 22% decline in coal costs versus 5% earlier.

* Valuations: The stock has already exceeded our target price of Rs475. At the current EV/te of ~US$73, we believe the stock is fairly valued given that the sectoral fundamentals remain weak. Consequently, we downgrade UTCL to HOLD from Buy with a target price of Rs509/share.

To see full report: Ultra Tech Cement