Recommendation: Buy
CMP = Rs 704
Price target: Rs 850
- At the current market price of Rs704, UltraTech Cement is discounting its FY2008 earnings by 26.8x and 11.8x its FY2008 earnings before interest, depreciation, tax and amortisation (EBIDTA).
- On an EV/tonne basis the stock is trading at an attractive valuation of US$118 per tonne of cement. This is a huge discount to its peers like ACC and Gujarat Ambuja that are trading at valuations in excess of US$150 per tonne of cement.
- I believe the valuations are very attractive considering the company’s high leverage to the prices of cement. Consequently, we are revising our price target for the stock to Rs850, at which it will be trading at US$140 per tonne of cement, which is still a discount to the valuations commanded by its peers.
Jaiprakash Associates
Recommendation: BuyCMP = Rs 480
Price target: Rs 650
- At the current market price of Rs480, Jaiprakash Associates is discounting its FY2007 earnings by 21.1x and its FY2007 EBIDTA by 7.6x.
- I have valued the company on the sum-of-parts basis. I have valued the cement business at the rate of US$140 per tonne of cement and the Engineering & Construction business at a multiple of 7 on FY2008 EBIDTA. Consequently we are revising our target for JAL to Rs650.
