Ultratech Cement Ltd. - Moneycontrol.comstatic-news.moneycontrol.com/.../UltraTech_Cement... · UltraTech Cement Ltd. Subdued quarter on volume ... We believe that acquisition of

Ultratech Cement Ltd.

RESULT UPDATE 19th July, 2017

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91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

ANALYST Vaibhav Chowdhry, [email protected], 91-22-6696 5571 Kunal Shah, [email protected], 91-22-6696 5568

KRChoksey Research is also available on Bloomberg KRCS<GO>

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UltraTech Cement Ltd. Subdued quarter on volume front !

CMP

INR 4210 Target

INR 4570 Potential Upside

8.5% Market Cap (INR mn)

1184585

Recommendation

ACCUMULATE Sector

Cement

Result highlights:

•Total Sales stood at INR 75203 mn which was up by 6% Y-O-Y and 0.3% Q-O-Q as against our estimate of INR 77354 mn. Cement sales volume was flat on Y-O-Y basis and declined by 6.2% on Q-O-Q basis and stood at 13.19 MT.

•EBIDTA stood at INR 15601 mn which was up by 9.7% Y-O-Y and 22.1% Q-O-Q and EBIDTA margin stood at 20.7% as against 20% same quarter last year. EBITDA was marginally above our expectations on account of lower than anticipated raw material costs.

•PAT stood at INR 8906 mn which was up by 14.9% Y-O-Y and 29.4% Q-O-Q while PAT Margin stood at 11.8%. Net profit was primarily above our estimates due to lower than expected interest costs.

SHARE PRICE PERFORMANCE

Shares outs (mn) 275

EquityCap (INR mn) 2745

Mkt Cap (INR mn) 1184585

52 Wk H/L (INR) 4531/3052

Volume Avg (3m K) 258.7

Face Value (INR) 10

Bloomberg Code UTCEM IN

MARKET DATA

SENSEX 31955

NIFTY 9900

MARKET INFO

Top-line marginally below estimates:

Cement sales volume for the company during Q1FY18 stood at 13.19 MT as against our estimate of 13.9 MT and was flat on Y-O-Y basis. Top-line stood at INR 75203 mn as against our estimate of INR 77354 mn and grew by 6% Y-O-Y and 0.3% Q-O-Q. Volumes for the company witnessed a slowdown primarily on account of sand availability issues in North and West and sluggish demand scenario in Southern region.

On corporate developments, the company successfully completed the acquisition of the cement plants of Jaiprakash Associates Ltd resulting into augmentation of total cement capacity for the company to 93 MTPA.

Going ahead, we expect the volumes for the company to grow from 50.19 MT in FY17 to 72.2 MT by FY19 translating into 19.94% CAGR. Likewise, we estimate UTCEM’s revenues to surge from INR 271624.2 mn in FY17 to INR 420020 mn by FY19 growing at 24.35% over the same period.

Acquisition to be margin dilutive in short term: During the quarter, EBITDA for the company stood at INR 15601 mn as against our estimate of INR 14692 mn and grew by 9.7% Y-O-Y and 22.1% Q-O-Q. EBITDA margins stood at 20.7% as against our estimate of 18.99% primarily on account of lower than anticipated raw material costs. Operating EBITDA/ton for the company during the quarter stood at INR 1182 while the same for JP assets (pre-acquisition) stood at INR 400. Consequently, we believe that the acquisition will be margin dilutive for Ultratech in the short term and we expect EBITDA margins to take a hit of 139 bps Y-O-Y in FY18. We expect EBITDA/ton to dip to INR 949 for FY18 from INR 1182 in Q1FY18. We expect EBITDA for UTCEM to grow by 31.18% from INR 49689.5 mn in FY17 to INR 85505.9 mn by FY19E and EBITDA/ton to rise from INR 935 in FY17 to INR 1184 by FY19. Interest costs to surge ; return ratios to remain suppressed post acquisition : With completion of the acquisition, we expect debt for the company to surge from INR 52471.2 mn in FY17 to INR 194471.2 mn in FY18E and estimate net debt/equity to increase from -0.08 to 0.55 coupled with interest costs burgeoning from INR 5713.9 mn to INR 14585.3 mn over the same period. Further, on account of increase in debt coupled with dilution in margins; we estimate return ratios to remain suppressed in the short term. We expect ROE to decline from 11.26% in FY17 to 7.95% in FY18 and ROCE to dip from 13.79% to 9.29% over the same period.

Particulars Jun 17 Mar 17 Dec 16

Promoters 62.14 62.16 62.26

FIIs 21.89 21.87 20.83

DIIs 5.53 5.5 6.27

Others 10.45 10.47 10.65

Total 100 100 100

SHARE HOLDING PATTERN (%)

Volume CAGR between FY 17 and FY 19E

19.9%

Revenue CAGR between FY 17 and FY 19E

24.3%

India Equity Institutional Research II Result Update - Q1FY18 II 19th July, 2017

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Valuation and Outlook: We believe that acquisition of cement assets of Jaiprakash Associates Ltd will lead to dilution in margins for the company in the near term and we estimate EBITDA margins to fall by 139 bps Y-O-Y and PAT margins to dip by 400 bps Y-O-Y in FY18. However, the acquisition acts as a positive trigger for the company in the long term as it provides scalability and significant increase in capacity share for the company ( capacity share in North and Central to increase from 13% to 49% post acquisition). With expected net debt of INR 115795.1 mn by FY19, the company trades at an EV/ton of $198 and EV/EBITDA of 14.85x. We believe the company will trade at premium valuations compared to its large cap peers on account of a.) significant market share(~20% post acquisition), b.) superior brand, c.) healthy balance sheet and d.)higher operating efficiencies. We value Ultratech Cement Ltd at an EV/EBITDA of 16x and arrive at a target price of INR 4570 which is an upside of 8.5% from CMP of INR 4210 . We have an ACCUMULATE rating on the stock.

Particulars (in INR) FY15 FY16 FY17 FY18E FY19E

Realization/ton 4842.16 4760.59 4705.32 4893.53 5070.58

COGS cost/ton 760.86 794.94 801.85 781.03 769.28

Employee cost/ton 260.37 267.88 281.62 297.16 279.96

Power and fuel cost/ton 1013.65 846.81 782.34 857.27 844.37

Transportation and Handling cost/ton 1154.17 1185.08 1164.62 1179.95 1192.65

Other Expenses/ton 825.23 804.57 739.74 828.78 799.95

EBITDA/ton 827.86 861.31 935.15 949.35 1184.37

Particulars (INR mn) FY15 FY16 FY17 FY18E FY19E

Revenues 259988.60 273402.10 271624.20 347436.25 420020.21

EBITDA 41532.70 45797.70 49689.50 58702.19 85505.87

PAT 19729.70 21383.00 26277.20 19708.43 38813.38

EPS 72.01 78.04 95.90 71.93 141.65

P/E (x) 40.03 41.44 44.19 58.53 29.72

EV/EBITDA (x) 20.14 20.09 23.01 21.96 14.85

Source: Company, KRChoksey Research


Key Financials

Operating metrics

UltraTech Cement Ltd.






UltraTech Cement Ltd. Q1FY18 Result Snapshot Key takeaways from Conference Call:

• Volumes for the quarter remained subdued primarily on account of sand/aggregate shortage in North and West and slowdown in

demand in Southern region. The management expects slowdown in cement demand in short-term on account of implementation

of RERA and GST.

• Capacity utilization for Ultratech during the quarter stood in excess of 90% in East, 80% in North and West, 60% in South and 70%

in the central region.

• The company plans to achieve cash break-even of acquired capacity from Jaiprakash Associates within four quarters of

operations. Further, the company intends to increase capacity utilization of those assets to 60% by end of FY18E and 70% in FY19E

as against ~15% currently.

• On power and fuel front, the company has witnessed softening of pet-coke prices in the last one month. Average pet-coke prices

for the company during Q1FY18 stood in the vicinity of $85 and currently stands at ~$87 after scaling a high of ~$95.

•The management maintains a cautiously optimistic stance on the long term prospects for the cement industry with affordable

housing, demand from rural housing and infrastructure spending by Government acting as key growth drivers for the industry.

Particulars (mn) Q1FY18 Q4FY17 Q1FY17 Q-O-Q Y-O-Y

Total Sales 75203 74994 70952 0.3% 6.0%

Total Expenditure 59602 62212 56727 -4.2% 5.1%

Cost of Raw Materials 9547 11508 10894 -17.0% -12.4%

Employee Cost 3803 3449 3466 10.3% 9.7%

Power and Fuel Costs 12174 11543 9237 5.5% 31.8%

Transportation costs 15880 16645 15452 -4.6% 2.8%

Other expenses 9261 10027 9021 -7.6% 2.7%

Excise duty paid on sales 8938 9041 8657 -1.1% 3.2%

PBIDT (Excl OI) 15601 12782 14225 22.1% 9.7%

EBITDA Margins (%) 20.7% 17.0% 20.0% 370bps 70bps

Depreciation 3098 3357 3027 -7.7% 2.3%

EBIT before Exceptional Item 12503 9425 11198 32.7% 11.6%

Exceptional Items 0 136.9 0 - -

Other Income 1652 2401 1504 -31.2% 9.8%

EBIT 14155 11689 12702 21.1% 11.4%

Interest 1285 1529 1525 -16.0% -15.7%

EBT 12870 10160 11177 26.7% 15.1%

Tax 3964 3277 3428 21.0% 15.6%

PAT 8906 6883 7749 29.4% 14.9%

PAT Margin (%) 11.8% 9.2% 10.92% 266bps 92bps

EPS 32.50 25.12 28.28 29.4% 14.9%

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UltraTech Cement Ltd. Financials

Balance Sheet (INR mn) FY15 FY16 FY17 FY18E FY19E

Equity Share Capital 2744.00 2744.30 2744.70 2744.70 2744.70 Reserves 185832.80 204616.60 227593.80 244937.22 279093.00 Net worth 188576.80 207360.90 233318.90 247793.92 281949.70 Total loans 74141.00 76607.00 52471.20 194471.20 174471.20 Capital Employed 283262 289821 316294 473405 488063 Net block 230211.50 239482.70 241101.50 406426.11 409055.72 Current Investments 25229.80 20276.10 54059.50 54059.50 54059.50 Inventories 27514.10 24260.90 22249.90 31755.04 38039.89 Sundry debtors 12031.90 14148.90 12761.70 17133.84 20713.33 Sundry creditors 27389.70 16135.70 17138.00 25139.40 28910.32 Cash and bank 2139.40 22352.00 16071.60 4932.18 4616.63 Total Current assets 79124.20 91910.00 118659.26 117462.98 126983.53 Total Current liabilities 87868.10 112090.30 80584.00 87600.93 85093.61

Capital Deployed 283262 289821 316294 473405 488063

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Profit & Loss (INR mn) FY15 FY16 FY17 FY18E FY19E

Total Sales 259988.60 273402.1 271624.20 347436.25 420020.21

COGS 35600.80 39810.8 40245.10 48294.12 55538.24

Employee Expenses 12182.90 13415.2 14134.40 18374.72 20212.19

Power and fuel 47428.90 42408.1 39265.50 53008.43 60959.69

Transportation cost 54003.80 59349 58452.20 72961.61 86104.14

Other Expenses 38612.60 40292.8 37127.60 51246.85 57752.78

Excise duty 30626.90 32328.5 32709.90 44848.33 53947.30

EBITDA 41532.70 45797.7 49689.50 58702.19 85505.87

D&A 11331.10 12890.3 12678.70 19565.39 20370.39

Other income 3717.80 2351.6 6599.50 4864.11 5880.28

EBIT 33919.40 35259 43610.30 44000.91 71015.76

Interest Expense 5474.50 5052.9 5713.90 14585.34 13085.34

PBT 28444.90 30206.1 37896.40 29415.57 57930.42

Tax 8715.20 8823.1 11482.30 9707.14 19117.04

Effective tax rate 30.64% 29.21% 30.30% 33.00% 33.00%

PAT 19729.70 21383 26277.20 19708.43 38813.38

Cash Flow (INR mn) FY15 FY16 FY17 FY18E FY19E

PAT 19729.70 21383.00 26277.20 19708.43 38813.38 Depreciation & Amortization 11331.10 12890.30 12678.70 19565.39 20370.39 (Incr)/Decr in Working Capital 90.70 5195.30 -8917.80 -5158.23 -11841.72 Cash Flow from Operating 40829.30 43306.10 35888.90 48700.93 60427.40 (Incr)/ Decr in Gross PP&E -25799.30 -20533.80 -14297.50 -184890.00 -23000.00 Cash Flow from Investing -18797.40 -17323.30 -37303.00 -184890.00 -23000.00 (Decr)/Incr in Debt 10082.50 7069.10 4172.10 142000.00 -20000.00 Dividend -2460.00 -2461.80 -3300.00 -2365.01 -4657.61 Finance costs -5494.80 -5388.00 -5713.90 -14585.34 -13085.34 Cash Flow from Financing -22667.50 -5822.20 -4841.80 125049.65 -37742.95 Incr/(Decr) in Balance Sheet Cash -635.60 20160.60 -6255.90 -11139.42 -315.55 Cash at the Start of the Year 2775.00 2166.90 22327.50 16071.60 4932.18 Cash at the End of the Year 2139.40 22327.50 16071.60 4932.18 4616.63










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Ratio Analysis FY15 FY16 FY17 FY18E FY19E

EBITDA/ton 827.86 861.31 935.15 949.35 1184.37

Volume (mn tons) 46.79 50.08 50.19 61.83 72.20

Growth (%)

Total Sales 13.03% 5.16% -0.65% 27.91% 20.89%

EBITDA 9.81% 10.27% 8.50% 18.14% 45.66%

PAT -6.45% 8.38% 22.89% -25.00% 96.94%

Profitability (%)

EBITDA Margin 15.97% 16.75% 18.29% 16.90% 20.36%

NPM 7.59% 7.82% 9.67% 5.67% 9.24%

Return ratios

ROE 10.46% 10.31% 11.26% 7.95% 13.77%

ROCE 11.97% 12.17% 13.79% 9.29% 14.55%

Per share data

EPS 72.01 78.04 95.90 71.93 141.65

BPS 688.24 756.79 851.53 904.36 1029.01

Valuations (x)

P/E (x) 40.03 41.44 44.19 58.53 29.72

P/BV (x) 4.19 4.27 4.98 4.66 4.09

EV/EBITDA (x) 20.14 20.09 23.01 21.96 14.85

EV/Ton ($) 202.58 198.64 241.76 209.58 198.59

Net Debt/EBITDA 1.13 0.74 -0.36 2.31 1.35

Net Debt/Equity 0.25 0.16 -0.08 0.55 0.41

Interest Coverage 6.20 6.98 7.63 3.02 5.43







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1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001. Phone: 91-22-6633 5000; Fax: 91-22-6633 8060.

Corporate Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053.

Phone: 91-22-6696 5555; Fax: 91-22-6691 9576.

7

7 Page India Equity Institutional Research II Result Update - Q1FY18 II 19th July, 2017

UltraTech Cement Ltd. Rating Legend

Date CMP (INR) TP (INR) Recommendation Our Rating Upside

19-July-17 4210 4570 ACCUMULATE Buy More than 15%

26-Apr-17 4238 4266 HOLD Accumulate 5% – 15%

Hold 0 – 5%

Reduce -5% – 0

Sell Less than – 5%

Analyst Certification

We, Vaibhav Chowdhry (B.Com, MBA), research analyst, & Kunal Shah (BE), senior research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities.

KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers.

The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances.

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Ultratech Cement Ltd. - Moneycontrol.comstatic-news.moneycontrol.com/.../UltraTech_Cement... · UltraTech Cement Ltd. Subdued quarter on volume ... We believe that acquisition of

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