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Monday, September 21, 2009

Mahindra & Mahindra Ltd and UltraTech Cement:Future growth outlook and prosepcts

1)Scripscan:Mahindra & Mahindra Ltd
Bse code:500520

Story:The company provides a high degree of disclosure on related party transactions and maintains a clear separation between subsidiaries. Separately, senior management have made disclosures to the board that there are no material, financial and/or commercial transactions between them and the company, which could create potential conflict of interest. CRISIL has assigned Governance and Value Creation (GVC) Level-1to Mahindra for its ability to create value for all its stakeholders.Management has made efforts to improve its governance. For instance, it now provides quarterly disclosure of non-operating items and their overall impact on P&L. Mahindra''s ranking in the JD Power Customer Satisfaction Index (CSI) has improved to fourth from seventh, demonstrating its commitment to delivering value to customers.Mahindra has made efforts to relocate workers from its existing facilities to the upcoming Chakan plant. This highlights management''s ability to work for the benefit of both shareholders by reducing costs, and workers by providing an alternative employment opportunity. I think growth of Mahindra''s UVs and LCVs will remain strong, driven by successful new launches and higher exposure to rural and semi-urban areas and I expect UV and LCV sales to grow 20% and 15% y-o-y respectively in FY10.A great buy altogether.

2)Scripscan:UltraTech Cement Ltd
Bse code:532538

Story:This was a bumper quarter for ULTC as net profit rose 58% to Rs4.2bn, and EBITDA margins were 37% on higher realizations, strong volumes and lower costs. EBITDA/t grew 29% yoy to Rs1,350/t, substantially higher than in the past. Sales volumes rose 24% to 5.3m tonnes; domestic cement sales increased 17% yoy to 4.5m tonnes due to the commissioning of the 4.9mtpa Andhra Pradesh plant taking ULTC''s capacity to 23mtpa. Buoyant demand also supported the growth. A large broekrage forecast volume growth (including clinker) of 11% in FY10 to 20.2m tonnes. Strong demand trends and temporary disruptions in cement supply kept prices firm in 1Q.Average domestic realizations for ULTC rose 9% yoy and 5% qoq to Rs3,700/t.Realizations are expected to decline in coming quarters due to the substantial increase in cement capacity. Prices have already begun to decline in the South, where ULTC''s new capacity has come up and which accounted for ~25% of its FY09 sales. Per tonne power and fuel costs fell 20% yoy in 1Q due to (1) lower coal costs as ULTC imports ~40% of usage; (2) benefit of captive power plants, which should meet ~80% of requirements. While cost pressures will be less of an issue for ULTC in FY10E-11E, price declines are likely to cause margins to fall.Exit ultratech and move on to better sectorial bets penned in these blog.

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