SNI MARKET OUTLOOK UPDATE 12TH SEPTEMBER 2013 : Expect market to open on a positive note on account of global cues. U.S. stocks closed higher, with the S&P 500 up for a seventh straight day, as geopolitical fears eased amid diplomatic efforts to resolve US, Syria tension. IIP number will be announced today. US FED meeting and RBI credit policy will be announced next week. Brent crude stable at $111/bbl and USDINR fell to $63.4 yesterday. We are positive on IDFC for investment. FIIs can now buy in the normal segment. As per company’s information the FII holding is at 49.5%. We expect IDFC rally as much as Axis Bank did following the same news. ResearchUpdates: ULTRATECH: Acquires Jaypee’s 4.8MT Gujarat capacity at USD124/t; ~3% EPS cut but benefits of consolidation can be meaningful ‐ (UTCEM IN, Mkt Cap USD7.6b, CMP INR1,734, TP INR2,076, 20% upside, Buy) ‐ Ultratech (UTCEM)’ has approved acquisition of 4.8MT of Gujarat‐based integrated cement units of Jaypee Cement Corporation Limited (JCCL), a 100% subsidiary of Jaiprakash associates (JAL) for INR38b (implied EV/ton of USD124 at INR/USD of 64). As a result, UTCEM’s total capacity would increase to ~70MT (post expansion by FY16), of which share of Gujarat will be ~17%. Transaction structure includes (1) UTCEM assuming INR36.5b of JCCL debt, and (2) INR1.47b of UTCEM’s equity (0.32% dilution). The deal is expected to take 7‐9 months to conclude. The acquisition comprises 5,479 hector of land and 500MT of limestone reserve, enabling strong scope to double existing capacity. The integrated plant has 57.5 MW coal based thermal power plant and 30 MW of DG sets, which is expected to serve the energy requirement of entire production. We expect the transaction to derive meaningful synergistic benefits viz. (1) premium branding driving improvement in realizations (~INR15/bag) and profitability, (2) savings on freight cost led by cement/clinker swap and market re‐alignment, (3) market consolidation with over 30% market share (~49% capacity share) for UTCEM to aid pricing power, and (4) tax savings on carry forward loss of INR3.5b (as per the mgmt). Management has indicated that this acquisition will be EPS accretive from 3rd year. Our ballpark estimates indicates EPS impact in FY15/16 EPS of 2.9%/3.4%, and leads to a cut in Target price by 1.9%, on account of rise in net debt by INR36.5b. Based on provisional estimates, the stock trades at ~14.1x FY15E EPS, 7.7x FY15 EV/EBITDA and EV/Ton ofUSD115 (for ~67MT capacity). Maintain Buy For more details log on to sainathinvestment
Posted on: Thu, 12 Sep 2013 03:31:58 +0000
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