UltraTech Cement’s (UTCEM’s) Q3FY11 results were marginally above expectation with the company reporting a profit ofRs3.2bn, as against our estimate of Rs3.05bn. Pickup in realisations in key Southern markets and higher contribution from the white cement business helped expand margins sequentially by 610bps to 19.6%. Results are not comparable on a YoY basis as Samruddhi Cement was merged with the company effective 1st July 2010. However, on a proforma financial for the combined entity, PAT declined 36% fromRs5.0bn in Q3FY10.

Outlook: We expect the combined entity to achieve a sales volume of 34mt in FY11 and 42mt in FY12. Margins are expected to be maintained at current levels with further fuel cost inflation negated by higher realisations. We maintain our earnings estimate for the company at Rs52.6 and Rs69.1 in FY11 and FY12 respectively.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 7.0x FY12E EV/EBITDA. The current stock price adequately captures the potential increase in realisations and demand pick up. We maintain a ‘HOLD’ rating on the stock with a target price of Rs1,034 discounting FY12E EBITDA 7x.