Ultratech Cement Ltd. - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2017/10/UltraTech... · UltraTech Cement Ltd. Q2FY18 Result Snapshot Particulars Depreciation 1367

Ultratech Cement Ltd.

RESULT UPDATE 23rd October, 2017

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UltraTech Cement Ltd. Operating efficiencies above estimates !

CMP

INR 4034 Target

INR 4605 Potential Upside

14.2% Market Cap (INR mn)

1,104,778

Recommendation

ACCUMULATE Sector

Cement

Result highlights:

•Net sales stood at INR 65713 mn as against our estimate of INR 65870 mn; up by 20.4% y-o-y and flattish on q-o-q basis. Cement sales volume was higher by 17.5% on y-o-y basis and remained flattish on q-o-q basis standing at 13.14 MT.

•EBIDTA stood at INR 13513 mn which was up by 17% y-o-y and down 13.4% q-o-q and EBIDTA margin stood at 20.6% as against 21.2% same quarter last year. EBITDA was 13% above our expectations (est. of 11970 mn) on account of higher realizations and lower than anticipated freight costs. PAT stood at INR 4312 mn which was down by 28.3% y-o-y and 51.6% q-o-q while PAT margin stood at 6.6%. Net profit stood 15% higher than estimates (est. of 3760 mn) owing to better than expected operational efficiencies.

SHARE PRICE PERFORMANCE

Shares outs (mn) 275

EquityCap (INR mn) 2745

Mkt Cap (INR mn) 1104778

52 Wk H/L (INR) 4531/3052

Volume Avg (3m K) 230.1

Face Value (INR) 10

Bloomberg Code UTCEM IN

MARKET DATA

SENSEX 32390

NIFTY 10147

MARKET INFO

Revenues in-line with estimates:

Volume growth for the company stood at 17.5% y-o-y during the quarter primarily on account of acquisition of JPA assets. In Q2FY18, cement sales volume stood at 13.14 MT; marginally below our estimates of 13.82 MT. As expected; UP, Bihar and Tamil Nadu continue to face sluggish demand on account of sand availability issues while adverse rainfalls led to poor demand in Gujarat. Low cost housing emerged as one of the key demand drivers during the quarter. We believe that affordable housing coupled with higher infrastructure spends by Government will continue to boost cement demand over FY17-FY22.

Going ahead; we expect positive momentum for volume growth to continue and estimate Ultratech (ex JPA)/ JPA assets to operate at 82.73%/70% during FY19. Consequently, we factor in revenue/volume CAGR of 24.35%/20% for Ultratech over FY17-FY19.

Operating efficiencies above estimates; a positive surprise: During the quarter, dilution in operating margins for the company was lower than expected as margins took a hit of 60 bps y-o-y vs. our estimates of 300 bps y-o-y. EBITDA/ton for Ultratech stood at INR 1028 in Q2FY18 as against INR 1033 in Q2FY17. It was higher than our estimate of INR 934 owing to better realizations and lower than anticipated freight costs. The company continued to sustain higher operating efficiencies on account of optimization of lead distance and enhancement in usage of WHRS and alternate fuel. Going ahead, we expect improvement in operating efficiencies for the company on account of higher operating leverage and better realizations. We reckon that EBITDA for Ultratech should 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 to INR 1184 over the same period. Valuation and Outlook: Currently, the key focus for Ultratech is to achieve cash break-even for JPA assets by Q1FY19E. 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 106223 mn by FY19, the company trades at an EV/ton of $190 and EV/EBITDA of 14.17x. 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, and c.)higher operating efficiencies. We maintain our ACCUMULATE rating on the stock with a target price of INR 4605 (assigning EV/EBITDA of 16x on FY19E) which is an upside of 14.2% from CMP of INR 4034.

Particulars Sep 17 Jun 17 Mar 17

Promoters 62.13 62.14 62.16

FIIs 22.15 21.89 21.87

DIIs 5.55 5.53 5.5

Others 10.18 10.45 10.47

Total 100 100 100

SHARE HOLDING PATTERN (%)

Volume CAGR between FY 17 and FY 19E

19.9%

EBITDA CAGR between FY 17 and FY 19E

31.2%

India Equity Institutional Research II Result Update - Q2FY18 II 23rd October, 2017

80

130

180

Oct

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Ap

r-15

Oct

-15

Ap

r-16

Oct

-16

Ap

r-17

Oct

-17

Sensex Ultratech Cement Ltd

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com

KRChoksey Research is also available on Bloomberg KRCS<GO>

Thomson Reuters, Factset and Capital IQ

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

UltraTech Cement Ltd.

Q2FY18 Result Snapshot Key takeaways from Conference Call: • On the acquisition front, the company infused the necessary working capital in the JPA assets for smooth functioning and has launched UltraTech brand across all the assets. The operations were EBITDA accretive and the company is confident of achieving cash break-even by end of Q1FY19E. • On the demand front during the quarter, Eastern region continues to be the fastest growing area while pockets in North were significantly impacted by sand shortage. Management expects sand availability issues in North to normalize by end of Oct 2017. There are signs of demand revival in West primarily owing to higher infrastructure spends by the Government. In the South, demand in AP & Telangana continue to grow at robust pace while Tamil Nadu and Kerala continue to face slowdown. • Pet-coke prices continue to rise with average prices of ~$90 during Q2FY18 while exit prices for the quarter hovering around ~$105. Some markets for the company are inclined towards switching back to coal on account of significant hike in pet-coke prices. • The company has optimized lead distance by 3% y-o-y and expects further lead distance reduction on account of acquisition of JPA assets. • Going ahead, the management expects revival in cement demand on account of low cost housing followed by higher infrastructure spends by the Government. Further, the company expects Eastern region to be the fastest growing region over the next couple of years followed by North and West/South.

Particulars (mn) Q2FY18 Q1FY18 Q2FY17 q-o-q y-o-y

Net Sales 65713 66265 54576 -0.8% 20.4%

Total Expenditure 52200 50664 43028 3.0% 21.3%

Cost of Raw Materials 9153 9547 8609 -4.1% 6.3%

Employee Cost 4440 3803 3572 16.8% 24.3%

Power and Fuel Costs 13348 12174 8797 9.6% 51.7%

Transportation costs 15553 15880 12749 -2.1% 22.0%

Other expenses 9707 9261 9301 4.8% 4.4%

PBIDT (Excl OI) 13513 15601 11548 -13.4% 17.0%

EBITDA Margins (%) 20.6% 23.5% 21.2% -298bps -60bps

Depreciation 4988 3098 3139 61.0% 58.9%

EBIT before Exceptional Item 8525 12503 8409 -31.8% 1.4%

Exceptional Items 0 0 0 - -

Other Income 1680 1652 1725 1.7% -2.6%

EBIT 10206 14155 10134 -27.9% 0.7%

Interest 3759 1285 1367 192.5% 175.0%

EBT 6447 12870 8767 -49.9% -26.5%

Tax 2135 3963 2757 -46.1% -22.6%

PAT 4312 8906 6011 -51.6% -28.3%

PAT Margin (%) 6.6% 13.4% 11.01% -688bps -445bps

EPS 15.74 32.50 21.94 -51.6% -28.3%

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Source: Company, KRChoksey Research


Particulars (INR mn) FY15 FY16 FY17 FY18E FY19E

Revenues 259988.60 273402.10 271624.20 358387.58 420020.21

EBITDA 41532.70 45797.70 49689.50 64427.35 85505.87

PAT 19729.70 21383.00 26277.20 23647.01 38813.38

EPS 72.01 78.04 95.90 86.30 141.65

P/E (x) 40.03 41.44 44.19 46.74 28.48

EV/EBITDA (x) 20.14 20.09 22.89 19.12 14.17


Key Financials





UltraTech Cement Ltd. Financials

Balance Sheet (INR mn) FY15 FY16 FY17 FY18E FY19E

Equity Share Capital 2744.00 2744.30 2745.10 2745.10 2745.10

Reserves 185832.80 204616.60 236665.00 257474.37 291630.15

Net worth 188576.80 207360.90 239410.10 260219.47 294375.25

Total loans 74141.00 76607.00 52471.20 194471.20 174471.20

Capital Employed 283262 289821 322385 485831 500488

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 17673.91 20713.33

Sundry creditors 27389.70 16135.70 17138.00 25139.40 28910.32

Cash and bank 2139.40 22352.00 22177.40 13958.39 14188.38

Total Current assets 79124.20 91910.00 124750.50 129888.53 139409.08

Total Current liabilities 87868.10 112090.30 80584.00 87600.93 85093.61

Capital Deployed 283262 289821 322385 485831 500488

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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 23647.01 38813.38

Depreciation & Amortization 11331.10 12890.30 12678.70 19565.39 20370.39

(Incr)/Decr in Working Capital 90.70 5195.30 4878.30 -5703.77 -11296.18

Cash Flow from Operating 40829.30 43306.10 47212.50 52093.97 60972.94

(Incr)/ Decr in Gross PP&E -25799.30 -20533.80 -12593.20 -184890.00 -23000.00

Cash Flow from Investing -18797.40 -17323.30 -23635.00 -184890.00 -23000.00

(Decr)/Incr in Debt 10082.50 7069.10 -15337.20 142000.00 -20000.00

Dividend -2460.00 -2461.80 -3084.80 -2837.64 -4657.61

Finance costs -5494.80 -5388.00 -5470.40 -14585.34 -13085.34

Cash Flow from Financing -22667.50 -5822.20 -23826.40 124577.02 -37742.95

Incr/(Decr) in Balance Sheet Cash -635.60 20160.60 -248.90 -8219.01 229.99

Cash at the Start of the Year 2775.00 2166.90 22327.50 22177.40 13958.39

Cash at the End of the Year 2139.40 22327.50 22177.40 13958.39 14188.38










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Ratio Analysis FY15 FY16 FY17 FY18E FY19E

EBITDA/ton 827.86 861.31 935.15 1009.77 1184.37

Volume (mn tons) 46.79 50.08 50.19 63.80 72.20

Growth (%)

Total Sales 13.03% 5.16% -0.65% 31.94% 17.20%

EBITDA 9.81% 10.27% 8.50% 29.66% 32.72%

PAT -6.45% 8.38% 22.89% -10.01% 64.14%

Profitability (%)

EBITDA Margin 18.11% 19.00% 20.80% 20.63% 23.36%

NPM 8.60% 8.87% 11.00% 7.57% 10.60%

Return ratios

ROE 10.46% 10.31% 10.98% 9.09% 13.19%

ROCE 11.97% 12.17% 13.53% 10.27% 14.19%

Per share data

EPS 72.01 78.04 95.90 86.30 141.65

BPS 688.24 756.79 873.76 949.71 1074.36

Valuations (x)

P/E (x) 40.03 41.44 44.19 46.74 28.48

P/BV (x) 4.19 4.27 4.85 4.25 3.75

EV/EBITDA (x) 20.14 20.09 22.89 19.12 14.17

EV/Ton ($) 202.58 198.64 240.46 200.27 189.55

Net Debt/EBITDA 1.13 0.74 -0.48 1.96 1.24

Net Debt/Equity 0.25 0.16 -0.10 0.49 0.36

Interest Coverage 6.20 6.98 7.63 3.42 5.43


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


Operating metrics





UltraTech Cement Ltd. Rating Legend

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

23-Oct-17 4034 4605 ACCUMULATE Buy More than 15%

19-July-17 4210 4570 ACCUMULATE Accumulate 5% – 15%

26-Apr-17 4238 4266 HOLD Hold 0 – 5%

Reduce -5% – 0

Sell Less than – 5%


6

6 Page India Equity Institutional Research II Result Update - Q2FY18 II 23rd October, 2017




ANALYST CERTIFICATION:

We, Vaibhav Chowdhry (B.Com, MBA), research analyst and 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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Documents

Ultratech Cement Ltd. - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2017/10/UltraTech... · UltraTech Cement Ltd. Q2FY18 Result Snapshot Particulars Depreciation 1367