Stock Views on ULTRATECH CEMENT, ESCORTS

STANDARD CHARTERED on ESCORTS

Standard Chartered initiates coverage on Escorts with `Outperform' rating and a price target of 181, valued at 8x one-year forward earnings and at a 33% discount to M&M's core business. They expect volume momentum and improving realisations in tractors to result in a 25% standalone earnings CAGR over FY10-12E. After disappointing over the past two quarters, Escorts' core business is back on track, driven by: 1) volume momentum in tractors, 2) bounce back in margins post-two price hikes in the recent quarter, and 3) the auto component segment ceasing to be a drag on earnings. The robust outlook for the construction equipment sector coupled with a much improved product mix is likely to revive ECEL's earnings over FY10-12E. StanChart values Escorts as a pure tractor play with the nearest comparable proxy being M&M. Given M&M's leadership, earnings profile and scale, StanChart values Escorts at a 33% discount to M&M's core business multiple (12x) at 8x, which is also its historic average forward multiple.

BNP PARIBAS on ULTRATECH CEMENT

BNP Paribas reiterates `Reduce' rating on Ultratech Cement. Ultratech reported flattish volume growth y-o-y given higher exposure to weak south and north regions. On a like-for-like basis it reported sales and EBIT increases of 6.7% y-o-y and 5.5% y-o-y respectively. Ultratech reported consolidated net profit of 690 crore, 47% higher than the estimate, aided by tax provision reversal of 115 crore in Q411 and higher-than estimated other income. Driven by price cooperation among cement vendors, ASPs increased 7% q-o-q leading to a standalone EBITDA/t of 962.5. While UTCEM benefited from higher ASPs, the full impact of domestic coal price hikes has not been seen yet. Ultratech saw a secular increase in RM costs and other expenses which, however, were offset by the ASP increase. Ultratech trades at EV/t of $131.0/t. BNP reiterates the negative view on the Indian cement sector due to muted demand growth, 20-25% oversupply, and rising commodity costs for FY12.