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17 October 2016

2QFY17 Results Update | Sector: Cement

Ultratech Cement
BSE SENSEX
27,530
Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INR m
Free float (%)

S&P CNX
8,520
UTCEM IN
274.4
1,001.1 / 16.5
4,130/ 2,581
6/11/34
922
37.7

CMP: INR4,009

Buy

Subdued volumes offset by cost efficiency and stable prices

Financials & Valuations (INR b)


2016
2017E 2018E
Y/E Mar
Sales
238.4
255.7 302.3
EBITDA
43.5
53.8
76.9
NP
21.7
29.9
47.2
Adj EPS (INR)
79.3
108.9 171.9
EPS Gr. (%)
7.9
37.4
57.8
BV/Sh (INR)
755.8
853.1 1,007.6

RoE (%)
11.0
13.5
18.5
RoCE (%)
9.3
11.5
15.7
Payout (%)
13.9
10.7
10.1

Valuations
P/E (x)
50.6
36.8
23.3
P/BV (x)
5.3
4.7
4.0
EV/EBITDA (x)
25.0
19.7
13.2
EV/Ton (USD)
244
238
227

Estimate change
TP change
Rating change

TP: INR4,675 (+17%)

Weak volumes: Ultratech Cements (UTCEM) 2QFY17 revenues declined 2%


YoY to INR53.98b (our estimate: INR53.97b) due to lower RMC and white
cement revenues. Grey cement volumes increased only 1% YoY due to heavy
rainfall in its main markets. However, PAT increased 31% YoY to INR6.01b as
Ind-AS impact of INR750m led to higher other income in 2QFY17.
Benefits of favorable cost curve eroding: Grey cement realization increased
2% QoQ (-1% YoY) to INR4161/ton in a seasonally weak quarter. While some
benefits of cost efficiency were reversed due to higher power and fuel cost
(sharp increase in petcoke prices), we note that total unitary cost was still
down 7% YoY (+6% QoQ) due to low-cost inventory. EBITDA grew 19% YoY to
INR10.94b (our estimate: INR10.66b), leading to EBITDA/ton of INR992
(+INR164 YoY, -INR59 QoQ) and margins of 20.3% (+360pp YoY; -190pp QoQ).
Other highlights: (a) Net debt is down by INR16.2b since end-FY16, with net
cash of INR4.4b. (b) The JPA deal has received approval from CCI and should be
completed in next 5-6 months.
Management commentary: Management expects volume growth to pick up in
2HFY17, led by government-led infra spending, good monsoon and
disbursement of the 7th Pay Commission-related wage hikes. Full impact of
rising fuel prices would be seen in 4QFY17.
Valuation and view: Industry dynamics are turning favorable, led by 1) demand
improvement, 2) slowdown in capacity addition and 3) higher consolidation.
This would likely drive strong pricing improvement as utilization levels (exsouth) are above 80%. Against this backdrop, UTCL is increasing capacity by
31% in next 12 months via JPA acquisition and entering the consolidated Satna
cluster. Thus, the company (ex-JPA) is expected to see strong RoE expansion of
690bp to 18% and EBITDA CAGR of 33% over FY16-FY18. The stock trades at
13.2x FY18E EV/EBITDA and USD227/ton. Maintain Buy with a TP of INR4,675
(15x FY18E EV/EBITDA).

Abhishek Ghosh (Abhishek.Ghosh@motilaloswal.com); +91 22 3982 5436


Varun Gadia (Varun.Gadia@MotilalOswal.com)

Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Ultratech Cement

Muted volume growth; Stable prices in seasonally weak quarter

UTCEMs 2QFY17 domestic cement volume grew 0.5%YoY to 10.6mt (est. 2%YoY) lower than industry growth.
Pricing increase was higher than expectation at +2% QoQ (-1% YoY), with North
being the strongest region. While the spot prices are marginally lower in North
and other select regions due to festival season, we expect the same to pick up
beginning Novemebr-16.
Cement revenue stood were higher at INR45.23b (flat yoy% YoY), while RMC and
White cement revenues declined 5% and 20% YoY respectively. It translates into
total revenue of INR53.98b, -2% YoY.

Exhibit 1: Cement volume grew at 1% YoY


Growth (%)

Realizations (INR/ton)

10.3
9.3
9.9
11.1
10.1
9.2
10.0
12.2
11.7
10.4
11.0
11.8
12.1
10.8
11.5
13.6
12.9
10.9

Dispatches (m ton)

Exhibit 2: Grey cement realizations improved sequentially

16

6 1

3,894
4,121
4,219
4,050
4,012
4,120
3,970
3,936
3,974
4,094
4,313
4,144
4,357
4,183
4,192
4,139
3,946
4,083
4,161
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17

15

12 10

1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17

-2

-4 -2

4 4 4

-1 0
-3

Source: Company, MOSL

Source: Company, MOSL

Exhibit 3: White cement volume decreased by 4% yoy

13

15

11

11
5

273

225

239

262

296

250

294

274

329

257

302

316

352

267

322

338

385

280

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

-4

4QFY12

310

17

Growth (%)

2QFY17

21

White Cement incl Putty('000 ton)


23

Source: MOSL, Company

Margin benefits to reverse going forward

17 October 2016

UTCEM recorded +3.6pp yoy expansion in margins at 20.3% (-1.9pp YoY), led by
benefits of low cost inventory of fuel.
UTCEMs unitary cost was down 7% YoY on account of (a) savings in energy cost,
and (b) freight cost
Energy cost was down 17% YoY led by (a) rise in WHRS (7% mix, (b)YoY better
efficiency norms power consumption(3%), (c) improved pet coke usage in kiln
(76% vs 65% yoy)
Consequently, EBITDA grew 19%YoY to INR 10.94b (v/s est of INR10.66b),
leading into EBITDA/ton of INR992 (+INR163 yoy, -INR59 qoq)
PAT stood at INR6.01b, +31% YoY, further boosted by other income(INR 750mn)
due to IND AS impact
2

Ultratech Cement
Exhibit 5: Trend in EBITDA/ton (INR)

1,055
1,004
1,050
1,015
692
745
914
843
779
748
1,013
882
828
884
919
1,052
992
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17

2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17

10,052
10,243
11,993
10,491
6,597
7,641
11,429
10,079
8,295
8,457
12,323
10,939
9,212
10,439
12,850
13,723
10,938

21.4
21.1
22.2
21.2
14.6
16.0
19.6
17.8
15.4
15.4
20.1
18.4
16.7
18.2
20.0
22.2
20.3

Exhibit 4: Margin expansion led by better cost savings


EBITDA (INR m)
EBITDA (%)

Source: Company, MOSL

Source: Company, MOSL

Exhibit 6: Trend in key operating parameters (incl RMC & white cement business)
INR/Ton
Realization
RM Cost
Power & Fuel
Staff Cost
Freight & Forwarding
Other Expenditure
Total Expenditure
EBITDA

2QFY17
4,828
771
787
320
1,140
832
3,850
992

2QFY16
4,969
812
952
307
1,211
858
4,141
828

YoY (%)
-2.8
-5.0
-17.4
4.0
-5.9
-3.1
-7.0
19.8

1QFY17
QoQ (%)
4,687
3.0
828
-6.9
700
12.4
263
21.6
1,171
-2.7
684
21.6
3,647
5.9
1,052
-5.7
Source: Company, MOSL

Operating metrics
Exhibit 7: Key assumptions
Capacity (MT)
Dispatches (MT)
Growth (%)
Cap. Util (%)
Grey Realization (INR/ton)
Increase (INR/ton) YoY
Blended Realn (INR/ton)
RM Cost
Power & Fuel
Other Expenditure
Staff Cost
Freight & Forwarding
Total Expenditure
Growth (%)
Blended EBITDA/ton
Grey EBITDA/ton

FY12
48.8
40.7
17.5
83.6
3735
509
4399
618
1033
651
199
898
3400
12.7
961
874

FY13
50.9
40.7
-0.2
79.9
4103
368
4852
698
1032
745
232
1014
3721
9.4
1079
981

FY14
54.0
41.5
2.0
76.9
4000
-102
4771
781
970
799
238
1075
3862
3.8
848
742

FY15
61.6
44.9
8.1
72.8
4226
226
4983
773
1029
829
264
1172
4067
5.3
850
752

FY16
66.2
48.1
7.2
72.7
4138
-88
4891
806
858
815
275
1201
3999
-1.7
880
786

FY17E
66.2
50.5
5.0
76.4
4228
90
4994
822
824
791
280
1177
3891
-1.4
1037
942

FY18E
66.2
55.2
9.3
83.4
4628
400
5408
838
857
801
279
1207
3982
1.0
1357
1266

Source: Company, MOSL

17 October 2016

Ultratech Cement

Concall highlights:
Volume drivers
Primary demand drivers in 2HFY17 are increase in rural spending due to 23.5%
hike in pay for Central Government Staff and good monsoon. Infra demand to
be driven by government infrastructure projects and road construction.
Other factors that would influence demand positively on infra segment are Delhi
Mumbai Industrial Corridor, Mumbai metro project, government irrigation
spending and the Vizag Chennai Corridor.
Regional Trend
North impacted by consistent rains and sand shortages; East impacted by sand
shortages and floods in Bihar; Positive demand seen in Orissa and Chhattisgarh
due to increase in government spending; West saw subdued demand due to
heavy rains and festive season; AP / Telangana meaningful demand yet to be
seen.
Rural contribution increased by 1% YoY to 38%; Market Share in overall sales
increased by 1.7% to 7.5%.

Cost Trend
Petcoke prices have more than doubled to $80 per ton in last 6 months. The
impact of same would be largely seen in 4QFY17.

The benefits of ramp up split newly commissioned grinding units to be seen in


form of lower freight cost in subsequent quarters.
Capex
In steady state basis management intends to incur capex of Rs8-9bn annually (ex
of JPA).
Exhibit 8: Regional health as shared by UTCEM management

Source: MOSL, Company

17 October 2016

Ultratech Cement

Financials and Valuations


Income Statement
Y/E March
Net Sales
Change (%)
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT

(INR Million)
2012
181,664
37.6
40,039
22.0
9,026
31,013
2,239
4,568
33,343

2013
199,991
10.1
44,946
22.5
9,454
35,492
2,097
4,620
38,015

-666
34,009
9,467
27.8
24,542
24,062
71.4
13.2

0
38,015
11,700
30.8
26,315
26,315
9.4
13.2

Y/E March
Equity Share Capital
Reserves
Net Worth

2012
2,741
125,858
128,598

2013
2,742
149,606
152,348

Deferred liabilities
Loans
Capital Employed

17378
41,529
187,505

19059
54,085
225,493

Goodwill
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Investments

190,138
73,797
116,342
18,965
37,888

EO Expense/(Income)
PBT after EO expense
Tax
Tax Rate (%)
Reported PAT
Adj PAT
Change (%)
Margin (%)

2014

2015

2016

2017E

2018E

200,779

226,565

238,410

255,666

302,303

0.4

12.8

5.2

36,160

39,153

43,498

7.2
53,820
21.1

18.2
76,852
25.4

18.0

17.3

18.2

10,523

11,331

12,890

13,565

13,755

25,637

27,822

30,608

40,255

63,097

3,192

5,475

5,053

5,558

5,729

5,310

6,515

5,015

27,755

28,863

30,570

8,000
42,697

10,000
67,369
0
67,369
20,211
30.0
47,158
47,158
57.8

25.3

30.2

28.9

21,445

20,147

21,747

20,731

20,147

21,747

-21.2

-2.8

7.9

0
42,697
12,809
30.0
29,888
29,888
37.4

10.3

8.9

9.1

11.7

15.6

2017E
2,744
231,317
234,060

2018E
2,744
273,693
276,436

34622
71,607
340,289

38327
71,607
386,370

0
359,478
135,722
223,756
25,000
29,500

0
364,478
149,477
215,001
40,000
29,500
167,299
31,473
14,908
90,274
30,644
65,430
54,663
10,767
101,869
386,370

-956

28,711

28,863

30,570

7,266

8,715

8,823

Balance Sheet

Curr. Assets
Inventory
Debtors
Cash & Bank Bal
Others
Curr. Liability & Prov.
Creditors
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates

17 October 2016

2014

2015

2016

2,742

2,744

2,744

168,233

185,833

204,617

170,975

188,576

207,360

22958

27920

32274

51,993

74,142

76,607

245,927

290,638

316,241

213,822
82,599
131,224
35,054
51,087

250,778

318,741

354,478

56,257
20,359
7,660
1,896
26,342
41,947
33,740
8,207
14,310
187,505

92,059

109,267

122,157

158,718

209,475

224,483

20,384

20,737

15,000

53,917

52,088

51,081

56,723
23,505
10,172
1,427
21,619
48,595
37,903
10,692
8,128

64,489

69,850

87,956

23,684

27,514

24,261

12,810

12,032

14,149

2,775

2,139

22,351

25,220

28,165

27,195

51,614

61,511

62,280

41,884

48,481

51,013

9,730

13,030

11,267

12,875

8,339

25,677

125,074
26,617
14,009
56,429
28,018
63,041
52,534
10,507
62,033

225,493

245,927

290,638

316,241

340,289

Ultratech Cement

Financials and Valuations


Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
EV/Ton (Cap-USD)
Dividend Yield (%)
Return Ratios (%)
RoIC
RoE
RoCE
Working Capital Ratios
Fixed Asset Turnover (x)
Debtor (Days)
Creditor (Days)
Inventory (Days)
Wkg. Capital Turnover (Days)
Leverage Ratio
Debt/Equity

2012

2013

87.8
120.7
469.2
8.0
10.4

96.0
130.5
556
9.0
11.0

2014

2015

2016

2017E

2018E

108.9
158.4
853
10.0
10.7

171.9
222.0
1,008
15.0
10.1

36.8
25.3
4.7
4.1
19.7
238
0.2

23.3
18.1
4.0
3.3
13.2
227
0.4

11.8
13.5
11.5

18.6
18.5
15.7
1.2
18
66
38
123
0.3

75.6

73.4

79.3

114.0

114.7

126.2

623

687

756

9.0

9.0

9.5

13.5

14.2

13.9

54.6

50.6

34.9

31.8

5.8

5.3

28.1

25.0

265

244

0.2

0.2

18.8

18.1

12.3

9.8

9.4

20.5
16.9

18.7
14.7

12.8

11.2

11.0

10.8

9.9

9.3

1.0
15
68
41
29

1.1
19
69
43
15

1.2

1.4

1.5

23

19

22

76

78

78

43

44

37

23

13

39

1.4
20
75
38
89

0.3

0.4

0.3

0.4

0.4

0.3

Cash Flow Statement


Y/E March
Op. Profit/(Loss) before Tax
Interest/Dividends Recd.
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO expense
CF from Operating incl EO Exp.
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from investments
Issue of Shares
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates

17 October 2016

(INR Million)
2012
41,304
478
-7,340
158
34,600
22
34,578
-31,575
3,003
2,159
-29,416
16
83
-2,907
-1,905
-4,714
448
1,448
1,896

2013
46,244
566
-7,165
-3,887
35,759
32
35,727
-32,676
3,051
-10,349
-43,025
79
12,557
-3,268
-2,539
6,829
-469
1,896
1,427

2014

2015

2016

36,160

39,153

43,498

5,310

6,515

5,015

-3,367

-3,753

-4,470

-3,399

3,900

2,875

34,704

45,815

46,918

-956

35,660

45,815

46,918

-23,348

-62,440

-22,162

12,312

-16,625

24,757

-2,830

1,829

1,006

-26,178

-60,611

-21,155

69

323

66

-2,092

22,149

2,465

-3,192

-5,475

-5,053

-2,887

-2,869

-3,029

-8,102

14,128

-5,551

1,380

-668

20,212

1,427

2,775

2,139

2,775

2,139

22,351

2017E
53,820
8,000
-10,461
-2,278
49,081
0
49,081
-22,839
26,243
21,581
-1,257
0
-5,000
-5,558
-3,188
-13,746
34,078
22,351
56,429

2018E
76,852
10,000
-16,505
-5,992
64,356
0
64,356
-20,000
44,356
0
-20,000
0
0
-5,729
-4,782
-10,511
33,845
56,429
90,274

Ultratech Cement

Corporate profile
Exhibit 1: Sensex rebased

Company description
UltraTech Cement, the erstwhile cement division of
L&T Ltd, is a subsidiary of Grasim, a part of the
Aditya Birla Group. Post merger of Grasims cement
business, it is the largest cement company in India
with a total cements capacity of 61.5mt (by
1QFY16) with a pan-India presence. It is the largest
exporters of cement and clinker from India. Post
merger, it would be the largest cement company in
India and 10th largest in the world.

Source: MOSL/Bloomberg

Exhibit 2: Shareholding pattern (%)

Exhibit 3: Top holders


% Holding

Holder Name

Jun-16

Mar-16

Jun-15

Promoter

62.3

62.5

61.7

Life Insurance Corporation Of India

2.2

DII

6.8

7.1

6.8

Oppenheimer Developing Markets Fund

1.4

FII

19.6

19.0

20.3

Others

11.3

11.4

Note: FII Includes depository receipts

11.3
Source: Capitaline
Source: Capitaline

Exhibit 4: Top management

Exhibit 5: Directors

Name

Designation

Name

Name

Kumar Mangalam Birla

Chairman

Alka Bharucha*

Kumar Mangalam Birla

K K Maheshwari

Managing Director

Arun Adhikari*

O P Puranmalka

S K Chatterjee

Company Secretary

Atul Daga

Rajashree Birla

D D Rathi

Renuka Ramnath*

G M Dave*

S B Mathur*

K K Maheshwari

Sukanya Kripalu*

*Independent

Source: Capitaline

Exhibit 7: MOSL forecast v/s consensus

Exhibit 6: Auditors
Name

Type

BSR & Co LLP

Statutory

G P Kapadia & Co

Statutory

N D Birla & Co

Cost Auditor

N I Mehta & Co

Cost Auditor

EPS
(INR)

MOSL
forecast

Consensus
forecast

Variation
(%)

FY17

108.9

116.6

-6.6

FY18

171.9

152.9

12.4
Source: Bloomberg

Source: Capitaline

17 October 2016

Disclosures
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Kadambari Balachandran
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Motilal Oswal Securities Ltd

17 October 2016

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