1. business and industrial
2. company
3. merger and acquisition

Cement
October 20, 2014
UltraTech
India Research
Bloomberg: UTCEM IN
Reuters: UTCEM.BO
RESULT REVIEW
BUY
Operationally In-line; Re-iterate “BUY”
Recommendation
UltraTech’s 2QFY15 standalone net Sales, EBITDA & PAT rose 20%, 29%
and 55% YoY respectively to Rs54.3 bn, Rs8.8 bn and Rs4.1 bn respectively.
Its 1HFY15 net Sales, EBITDA & PAT rose 17%, 10% and 11% respectively.
EBITDA margin expanded 113bps YoY to 16.2% in 2QFY15 while it
contracted 110bps to 17.3% YoY in 1HFY15. EBITDA per MT stood at Rs823
and Rs853 during the quarter and during 1HFY15. While net sales and
EBITDA stood in-line with our 2QFY15 estimates, lower capital charges &
tax-rates resulted in reported PAT 30% ahead of our estimates.
Sales volume up 13% YoY: Total sales volume rose 13% YoY (vs our est of
17%) and dipped 11% QoQ. While grey cement sales declined 12% QoQ,
White/putty sales rose 18% QoQ.
Blended NSR rose 7% QoQ and YoY (vs our est of flat QoQ). Adjusted for
white/putty sales, NSR rose 5% QoQ and 8% YoY. Subsequently, net sales
came in 2% ahead of our estimates.
CMP:
Rs2,314
Target Price:
Rs2,837
Previous Target Price
Rs2,837
Upside (%)
23%
Stock Information
Market Cap. (Rs bn / US$ mn)
636/10,349
52-week High/Low (Rs)
2,872/1,634
3m ADV (Rs mn /US$ mn)
697/11.3
Beta
1.2
Sensex/ Nifty
26,109/7,780
Share outstanding (mn)
274
Stock Performance (%)
Absolute
Rel. to Sensex
1M
(10.9)
3M
(10.6)
12M
18.2
YTD
31.4
(9.1)
(12.5)
(7.5)
6.5
Performance
29,500
27,500
25,500
23,500
21,500
19,500
17,500
15,500
3,050
2,550
2,050
1,550
Oct-13
Nov-13
Jan-14
Feb-14
Mar-14
May-14
Jun-14
Jul-14
Sep-14
Oct-14
Higher NSR moderates impact of QoQ rise in operating costs: Operating
costs per MT rose 10% QoQ and 5% YoY. This was driven by (1) negative
operating leverage as sales volume declined 11% QoQ, (2) increase in volume
share of high value white/putty sales and (3) increase in pet-coke prices and
royalty on limestone. However, with strong 7% QoQ NSR increase, EBITDA
per MT dipped a modest Rs50 (up Rs105 YoY) to Rs823 per MT.
Subsequently, EBITDA came in 2% ahead of our estimates.
Sensex (LHS)
Maintain “BUY”: We maintain our earnings estimates for UltraTech and our
positive stance on the stock. With cement demand recovering from FY15E
onwards, we expect UltraTech to deliver 29% EBITDA CAGR during FY1417E. Sales volume CAGR of 12% and NSR CAGR of 6% should drive this
strong operational performance. Subsequently, we maintain our “BUY”
recommendation with a TP of Rs2,837 (no change) valuing it at 9x its
Mar’17E EBITDA. The TP discounts its FY16E EBITDA at 11.5x and implies
replacement costs of USD194/ USD186 per MT on FY16E/17E basis.
Ultartech Cement (RHS)
Source: Bloomberg
Earnings Revision – No Change
(%)
FY15E
FY16E
FY17E
Sales
-
-
-
EBITDA
-
-
-
PAT
-
-
-
Financial Summary (Standalone)
Source: Karvy Stock Broking
Year to March (Rs mn)
FY13
FY14
FY15E
FY16E
FY17E
201,800
202,798
248,206
297,118
341,849
46,755
38,179
51,165
66,952
82,364
23.2
18.8
20.6
22.5
24.1
26,555
20,489
25,958
34,766
44,263
EPS (Rs)
96.9
74.7
94.6
126.7
161.3
RoE (%)
18.9
18.2
14.2
16.6
18.1
RoCE (%)
19.4
13.0
15.4
18.0
21.0
P/E (x)
23.9
31.0
24.5
18.3
14.3
EV/EBITDA (x)
13.0
16.1
12.8
9.4
7.1
Net Revenues
EBITDA
EBITDA margin (%)
Net profit
Source: Company, Karvy Stock Broking
Analysts Contact
Rajesh Kumar Ravi
022 6184 4313
[email protected]
October 20, 2014
UltraTech
Quarterly Performance Trend
Exhibit 1: Key Standalone Operational Trend
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%)
Total sales volume (mn mt)
11.4
10.4
9.5
10.1
12.5
11.7
10.7
12.6
(10.9)
19.8
22.61
13.9
4,787
4,798
4,779
4,762
4,765
4,761
5,097
6.7
7.1
4,789
4,919
2.7
Raw material cost
743
752
800
807
778
737
784
(1.9)
6.4
775
760
(1.9)
Power and fuel cost
924
953
1,011
991
949
1,010
1,075
6.3
6.4
981
1,040
6.1
Employee cost
228
242
301
241
188
231
291
(3.2)
26.2
270
259
(3.9)
Transport cost
Trends (Rs/mt)
Net sales realization
1,046
1,061
1,051
1,106
1,092
1,112
1,213
15.4
9.0
1,056
1,160
9.8
Other expenses
724
757
899
830
742
792
910
1.3
15.0
825
847
2.8
Operating cost
3,665
3,765
4,061
3,975
3,749
3,882
4,274
5.2
10.1
3,906
4,066
4.1
RM and Fuel combined
1,667
1,705
1,811
1,798
1,727
1,747
1,859
2.7
6.4
1,755
1,800
2.5
Variable cost
2,713
2,766
2,861
2,904
2,819
2,860
3,072
7.4
7.4
2,812
2,960
5.3
953
999
1,199
1,071
930
1,022
1,201
0.2
17.5
1,094
1,107
1.1
1,121
1,032
718
786
1,016
879
823
14.7
(6.3)
883
853
(3.4)
Fixed costs
EBITDA
Source: Company, Karvy Stock Broking
Exhibit 2: Key Quarterly Financials
Financials (Rs mn)
Mar-13
Jun-13 Sep-13 Dec-13 Mar-14
Jun-14 Sep-14 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%)
Net Sales
54,720
49,802
45,219
48,179
59,599
56,921
54,293
20.1
(4.6)
95,021
111,214
17.0
Total Expenditure
41,900
39,084
38,424
40,222
46,889
46,416
45,523
18.5
(1.9)
77,508
91,939
18.6
Raw Materials
8,495
7,803
7,568
8,169
9,735
8,818
8,357
10.4
(5.2)
15,370
17,175
11.7
Power and Fuel
10,559
9,896
9,566
10,023
11,869
12,076
11,449
19.7
(5.2)
19,462
23,525
20.9
Employee
2,609
2,507
2,844
2,443
2,352
2,758
3,101
9.0
12.4
5,352
5,859
9.5
Transport
11,956
11,018
9,942
11,193
13,655
13,300
12,920
30.0
(2.9)
20,961
26,220
25.1
8,280
7,860
8,504
8,394
9,279
9,464
9,697
14.0
2.5
16,364
19,161
17.1
12,820
10,718
6,795
7,956
12,709
10,505
8,770
29.1
(16.5)
17,512
19,275
10.1
Others
EBITDA
EBITDA margins (%)
23.4
21.5
15.0
16.5
21.3
18.5
16.2
113
(230)
18.4
17.3
(110)
Other Income
1,005
1,656
376
681
577
2,131
741
97.1
(65.2)
2,032
2,873
41.4
Depreciation
2,460
2,521
2,573
2,645
2,785
2,645
3,024
17.5
14.3
5,093
5,669
11.3
EBIT
11,365
9,852
4,598
5,993
10,502
9,991
6,488
41.1
(35.1)
14,451
16,479
14.0
EBIT margins (%)
20.8
19.8
10.2
12.4
17.6
17.6
12.0
178
(560)
15.2
14.8
(39)
Interest
478
660
888
905
739
1,002
1,434
61.5
43.0
1,548
2,436
57.4
Taxes
3,626
2,466
1,070
1,391
2,340
2,733
954
(10.8)
(65.1)
3,536
3,687
4.3
Adjusted Net Profits
7,261
6,726
2,641
3,698
7,423
6,256
4,101
55.3
(34.5)
9,367
10,356
10.6
PAT margins (%)
13.3
13.5
5.8
7.7
12.5
11.0
7.6
171
(344)
9.9
9.3
(55)
EPS (Rs)
26.5
24.5
9.6
13.5
27.1
22.8
14.9
55.2
(34.5)
34.2
37.8
10.6
Source: Company, Karvy Stock Broking
2
October 20, 2014
UltraTech
Valuation & Outlook
Maintain estimates, TP and “BUY” recommendation: We maintain our earnings
estimates for UltraTech and our positive stance on the stock. With demand
recovering from FY15E onwards, we expect UltraTech to deliver 29% EBITDA
CAGR during FY14-17E. 12% sales volume and 6% NSR CAGR should drive this
strong operational performance. Subsequently, we maintain our “BUY”
recommendation with a TP of Rs2,837 (no change) valuing it at 9x its Mar’17E
EBITDA. The TP discounts its FY16E EBITDA at 11.5x and implies replacement
costs of USD194/ USD186 per MT on FY16E/17E basis.
Management commentary: The management guided for 8% YoY industry growth
in FY15E vs ~10% YoY growth in 1HFY15. On capex front, the company
commissioned 1.4 mn MT cement mill in Karnataka leading to total capacity of
60.2 mn MT by end of 1HFY15. By end of FY15E, the capacity will go up to 64.8 mn
MT. UltraTech also added 25 MW TPP at Tadipatri (Andhra Pradesh) leading to
total CPP of 733MW (80% of company’s power requirement.
Exhibit 3: Key Operational Estimates and Assumptions
FY12
Total Sales Volume (mn MT)
FY13
FY14
FY15E
FY16E
FY17E
41.7
41.7
42.6
49.8
56.2
60.7
4,395
4,843
4,759
4,980
5,283
5,635
618
698
781
739
776
814
1,033
1,032
970
1,010
1,051
1,093
Freight cost
800
909
1,075
1,105
1,161
1,219
Employee cost
199
232
238
245
250
260
Other Expenses
651
745
799
854
856
892
3,302
3,616
3,863
3,953
4,093
4,278
995
1,122
896
1,027
1,191
1,358
Net sales realization
Raw material cost
Power and Fuel cost
Opex
EBITDA
Source: Company, Karvy Stock Broking
3
October 20, 2014
UltraTech
Financial Summary
Exhibit 4: Profit & Loss Statement (Standalone)
Year to March (Rs mn)
Net Revenues
FY13
FY14
FY15E
FY16E
FY17E
201,800
202,798
248,206
297,118
341,849
% growth
10.2
0.5
22.4
19.7
15.1
155,045
164,619
197,041
230,167
259,485
EBITDA
46,755
38,179
51,165
66,952
82,364
% growth
12.7
(18.3)
34.0
30.9
23.0
Depreciation
9,454
10,523
13,092
15,786
17,631
Other Income
3,050
3,290
4,031
4,300
4,600
40,351
30,947
42,104
55,466
69,333
2,097
3,192
6,052
6,500
6,100
PBT
38,254
27,755
36,052
48,966
63,233
Tax
11,700
7,266
10,095
14,200
18,970
Adjusted PAT
26,555
20,489
25,958
34,766
44,263
7.9
(22.8)
26.7
33.9
27.3
Year to March (Rs mn)
FY13
FY14
FY15E
FY16E
FY17E
Cash & equivalents
1,427
2,775
2,137
1,942
3,156
Liquid investments
46,120
47,643
39,643
56,643
74,643
Debtors
10,172
12,810
13,600
16,280
15,922
Inventory
23,505
23,684
29,921
34,189
39,336
Loans & advances
21,564
25,067
26,863
28,491
28,097
4,968
6,273
6,273
6,273
6,273
Gross Block
213,822
250,778
322,854
347,854
362,854
Net Block
131,223
158,718
217,702
226,916
224,285
35,054
20,416
18,000
17,000
25,000
1,733
1,943
1,974
2,002
2,072
275,765
299,330
356,114
389,738
418,784
Current liabilities & provisions
48,598
51,648
57,870
72,969
74,538
Debt
54,085
51,962
79,574
67,305
55,135
Other liabilities
20,736
24,749
24,949
25,149
25,349
Total liabilities
123,420
128,359
162,393
165,424
155,022
2,742
2,744
2,744
2,744
2,744
Reserves & surpluses
149,603
168,228
190,977
221,570
261,018
Total networth
152,345
170,972
193,721
224,314
263,762
Total networth & liabilities
275,765
299,330
356,114
389,738
418,784
Operating expenditure
EBIT
Interest expenditure
% growth
Source: Company, Karvy Stock Broking
Exhibit 5: Balance Sheet (Standalone)
Long term Investments
CWIP
Miscellaneous
Total assets
Shareholders' equity
Source: Company, Karvy Stock Broking
4
October 20, 2014
UltraTech
Exhibit 6: Cash Flow Statement (Standalone)
Year to March (Rs mn)
FY13
FY14
FY15E
FY16E
FY17E
38,254
27,755
36,052
48,966
63,233
Depreciation
9,454
10,523
13,092
15,786
17,631
Interest
2,097
3,192
6,052
6,500
6,100
Tax paid
(7,165)
(6,549)
(9,895)
(14,000)
(18,770)
(Incr) / decr in net working capital
(4,089)
685
(2,954)
5,531
(3,538)
Other income
(3,052)
(3,266)
(4,031)
(4,300)
(4,600)
Cash flow from operating activities
35,524
32,416
38,316
58,483
60,055
(Incr) / decr in capital expenditure
(32,676)
(22,284)
(69,660)
(24,000)
(23,000)
(Incr) / decr in investments
(10,911)
(322)
10,000
(14,900)
(15,900)
PBT
Others
Cash flow from investing activities
Incr / (decr) in borrowings
Issuance of equity
562
511
2,031
2,200
2,500
(43,025)
(22,096)
(57,629)
(36,700)
(36,400)
12,557
(2,092)
27,612
(12,269)
(12,170)
79
44
2
-
-
Dividend paid
(3,268)
(4,046)
(6,052)
(6,500)
(6,100)
Interest paid
(2,539)
(2,878)
(2,887)
(3,209)
(4,172)
Cash flow from financing activities
6,829
(8,972)
18,675
(21,978)
(22,442)
Net change in cash
(672)
1,348
(638)
(195)
1,214
Source: Company, Karvy Stock Broking
Exhibit 7: Key Ratios
Year to March (%)
FY13
FY14
FY15E
FY16E
FY17E
EBITDA margin
23.2
18.8
20.6
22.5
24.1
EBIT margin
20.2
15.4
17.1
18.8
20.4
Net profit margin
13.3
10.2
10.6
11.8
13.0
Dividend payout ratio
10.9
14.1
12.4
12.0
10.9
0.0
0.0
0.2
0.0
(0.1)
RoCE
19.4
13.0
15.4
18.0
21.0
RoIC
17.5
12.8
13.9
15.8
19.1
RoE
18.9
18.2
14.2
16.6
18.1
FY13
FY14
FY15E
FY16E
FY17E
EPS (Rs)
96.9
74.7
94.6
126.7
161.3
DPS (Rs)
9.0
9.0
10.0
13.0
15.0
Book value per share (Rs)
556
623
706
818
961
P/E (x)
23.9
31.0
24.5
18.3
14.3
4.2
3.7
3.3
2.8
2.4
7.1
Net debt: equity
Source: Company, Karvy Stock Broking
Exhibit 8: Valuation Parameters
Year to March
P/BV (x)
EV/EBITDA (x)
13.0
16.1
12.8
9.4
EV/Sales (x)
3.0
3.1
2.7
2.1
1.7
EV/mt (USD)
197
185
165
158
147
Source: Company, Karvy Stock Broking
5
October 20, 2014
UltraTech
Stock Ratings
Buy
Hold
Sell
:
:
:
Absolute Returns
> 15%
5-15%
< 5%
For further enquiries please contact:
[email protected]
Tel: +91-22-6184 4300
Disclosures Appendix
Analyst certification
The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect
his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be
directly or indirectly related to the specific recommendation(s) or views contained in this research report.
Disclaimer
The information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained herein is
based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness
thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments
discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions
based on their specific investment objectives and financial position and using such independent advice, as they believe necessary.
While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Stock
Broking nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information
and views mentioned in this document.
The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned
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