Cement July 22, 2014
UltraTech
Bloomberg: UTCEM IN Reuters: UTCEM.BO
BUY
Institutional Equities
India Research
RESULT REVIEW
Recommendation
CMP: Rs2,528
Target Price: Rs2,837
Previous Target Price Rs2,837
Upside (%) 12%
Stock Information Market Cap. (Rs bn / US$ mn) 692/11,478
52-week High/Low (Rs) 2,872/1,402
3m ADV (Rs mn /US$ mn) 967/16
Beta 1.1
Sensex/ Nifty 25,715/7,684
Share outstanding (mn) 274
Stock Performance (%) 1M 3M 12M YTD
Absolute (7.5) 13.7 30.7 43.0
Rel. to Sensex (9.7) 0.6 2.4 17.7
Performance
Source: Bloomberg
Earnings Revision (%) (%) FY15E. FY16E. FY17E.
Sales 4.2. 7.3 7.3
EBITDA 3.5. 6.0 6.8
PAT 4.6. 1.1 2.9
Source: Karvy Institutional Research
Analysts Contact Rajesh Kumar Ravi
022 6184 4313
1,550
2,050
2,550
3,050
15,500 17,500 19,500 21,500 23,500 25,500 27,500
Jul-
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Dec
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4
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Jul-
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Sensex (LHS) Ultartech Cement (RHS)
Strong Volume Growth Drives Profitability UltraTech’s standalone 1QFY15 net Sales rose 14% YoY to Rs59.6 bn while
EBITDA & PAT declined 2% & 7% YoY respectively to Rs10.5 bn and Rs6.3
bn respectively. On QoQ basis, Sales, EBITDA & PAT declined 5%, 17%
and 16%. EBITDA per MT at Rs879 is down 15% YoY & 14% QoQ.
Strong volume growth drives profitability: Its net sales realization (NSR)
declined 1% YoY (flat QoQ) vs our estimate of 1.7% QoQ higher NSR.
However, its sales volume (+15% YoY & -4% QoQ) came in 2% ahead of our
estimates on account of amalgamation of JP Gujarat operational performance
during the quarter. Subsequently, net sales came in-line with our estimates.
Double digit volume growth came at slightly lower NSR growth. Operating
costs per MT rose 3.6% QoQ and 3% YoY (vs our estimates of 2% QoQ
increase) driven primarily by higher fixed costs per MT which rose 10% QoQ.
Input costs per MT rose a modest 1.5% QoQ on stable fuel costs and INR
appreciation. Subsequently, EBITDA declined 2% YoY and 17% QoQ to
Rs10.5 bn – 12% lower than our estimates led primarily by lower NSR. PAT
declined 7% YoY and 16% QoQ to Rs6.3 bn (our estimate Rs7.1 bn).
Re-iterate “BUY”: We have amalgamated the JP Gujarat (4.8 mn MT)
financials in UltraTech wef FY15E. Subsequently, we increase our
FY15E/16E/17E EBITDA estimates by 3.5%, 6%, 6.8% respectively. Our FY15E
upgrade is lower as we have adjusted the financials for lower than estimated
1QFY15 performance. On account of higher capital charges on amalgamation
of JP Gujarat unit, we cut our FY15E/16E PAT estimates by 4.6% & 1.1%
respectively and increase FY17E PAT by 3%. We expect UltraTech to deliver
29% EBITDA and PAT CAGRs during FY14-17E period led by 13% volume
growth. UltraTech has 80% CPP capability on its current capacity of 59
mnMT (India). The capacity will increase to 65 mn MT by end of FY15E. We
re-iterate our “BUY” recommendation with a TP of Rs2837 (no change)
valuing it at 11.5x its FY16E EBITDA. The TP discounts FY17E EBITDA at
8.9x and implies replacement cost valuations of USD194/187 on FY16E/17E
basis.
Financial Summary (Standalone)
Year to March (Rs mn) FY13 FY14 FY15E FY16E FY17E
Net Revenues 201,800 202,798 248,206 297,118 341,849
EBITDA 46,755 38,179 51,165 66,952 82,364
EBITDA margin (%) 23.2 18.8 20.6 22.5 24.1
Net profit 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) 26.0 33.8 26.7 19.9 15.6
EV/EBITDA (x) 14.2 17.6 13.9 10.2 7.8
Source: Company, Karvy Institutional Research
2
July 22, 2014
UltraTech
Quarterly Performance Trend
Exhibit 1: Key Standalone Operational Trend
Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 YoY (%) QoQ (%)
Total sales volume (mn mt) 11.8 10.5 9.5 10.2 11.4 10.4 9.5 10.1 12.5 12.0 15.2 (4.4)
Trends (Rs/mt)
Net sales realization 4,564 4,842 4,956 4,785 4,787 4,798 4,779 4,762 4,765 4,761 (0.8) (0.1)
Raw material cost 651 708 683 651 743 752 800 807 778 737 (1.9) (5.2)
Power and fuel cost 1,007 1,033 1,126 1,061 924 953 1,011 991 949 1,010 5.9 6.4
Employee cost 186 213 251 240 228 242 301 241 188 231 (4.5) 22.7
Transport cost 922 986 974 1,038 1,046 1,061 1,051 1,106 1,092 1,112 4.8 1.9
Other expenses 681 659 836 768 724 757 899 830 742 792 4.5 6.7
Operating cost 3,447 3,598 3,871 3,757 3,665 3,765 4,061 3,975 3,749 3,882 3.1 3.6
RM and Fuel combined 1,658 1,741 1,809 1,712 1,667 1,705 1,811 1,798 1,727 1,747 2.5 1.2
Variable cost 2,580 2,726 2,784 2,750 2,713 2,766 2,861 2,904 2,819 2,860 3.4 1.5
Fixed costs 867 871 1,087 1,007 953 999 1,199 1,071 930 1,022 2.4 9.9
EBITDA 1,117 1,244 1,085 1,028 1,121 1,032 718 786 1,016 879 (14.9) (13.5)
Source: Company, Karvy Institutional Research
Exhibit 2: Key Quarterly Financials (Standalone)
Financials (Rs mn) Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 YoY (%) QoQ (%)
Net Sales 53,916 50,909 47,274 48,821 54,720 49,802 45,219 48,179 59,599 56,921 14.3 (4.5)
Total Expenditure 40,725 37,830 36,922 38,331 41,900 39,084 38,424 40,222 46,889 46,416 18.8 (1.0)
Raw Materials 7,689 7,444 6,518 6,639 8,495 7,803 7,568 8,169 9,735 8,818 13.0 (9.4)
Power and Fuel 11,902 10,862 10,741 10,827 10,559 9,896 9,566 10,023 11,869 12,076 22.0 1.7
Employee 2,195 2,236 2,395 2,444 2,609 2,507 2,844 2,443 2,352 2,758 10.0 17.3
Transport 10,889 10,363 9,292 10,587 11,956 11,018 9,942 11,193 13,655 13,300 20.7 (2.6)
Others 8,049 6,925 7,975 7,834 8,280 7,860 8,504 8,394 9,279 9,464 20.4 2.0
EBITDA 13,191 13,079 10,352 10,489 12,820 10,718 6,795 7,956 12,709 10,505 (2.0) (17.3)
EBITDA margins (%) 24.5 25.7 21.9 21.5 23.4 21.5 15.0 16.5 21.3 18.5 (307) (287)
Other Income 1,450 688 406 965 1,005 1,656 376 681 577 2,131 28.7 269.1
Depreciation 2,332 2,281 2,325 2,388 2,460 2,521 2,573 2,645 2,785 2,645 4.9 (5.0)
EBIT 12,309 11,485 8,434 9,066 11,365 9,852 4,598 5,993 10,502 9,991 1.4 (4.9)
EBIT margins (%) 22.8 22.6 17.8 18.6 20.8 19.8 10.2 12.4 17.6 17.6 (223) (7)
Interest 586 498 600 521 478 660 888 905 739 1,002 51.8 35.5
Taxes 3,150 3,203 2,334 2,537 3,626 2,466 1,070 1,391 2,340 2,733 10.8 16.8
Adjusted Net Profits 8,573 7,784 5,500 6,008 7,261 6,726 2,641 3,698 7,423 6,256 (7.0) (15.7)
PAT margins (%) 15.9 15.3 11.6 12.3 13.3 13.5 5.8 7.7 12.5 11.0 (252) (147)
EPS (Rs) 31.3 28.4 20.1 21.9 26.5 24.5 9.6 13.5 27.1 22.8 (7.1) (15.8)
Source: Company, Karvy Institutional Research
3
July 22, 2014
UltraTech
Outlook and Valuation
We have amalgamated the JP Gujarat (4.8 mn MT) financials in UltraTech wef
from FY15E. Subsequently, we increase our FY15E/16E/17E EBITDA estimates by
3.5%, 6%, 6.8% respectively. Our FY15E upgrade is lower as we have adjusted the
financials for lower than estimated 1QFY15 performance. On account of higher
capital charges on amalgamation of JP Gujarat unit, we cut our FY15E/16E PAT est
by 4.6% and 1.1% respectively and increase FY17E PAT by 3%.
We expect UltraTech to deliver 29% EBITDA and PAT CAGRs during FY14-17E
period led by 13% volume growth. UltraTech has 80% captive power capability on
its current capacity of 59 mnMT (India). The capacity will increase to 65 mn MT by
end of FY15E.
We re-iterate our “BUY” recommendation with a TP of Rs2837 (no change)
valuing it at 11.5x its FY16E EBITDA. The TP discounts FY17E EBITDA at 8.9x and
implies replacement cost valuations of USD194/187 on FY16E/17E basis.
Exhibit 3: Key Operational Estimates and Assumptions
FY12 FY13 FY14 FY15E FY16E FY17E
Total Sales Volume (mn MT) 41.7 41.7 42.6 49.8 56.2 60.7
Net sales realization 4,395 4,843 4,759 4,980 5,283 5,635
Raw material cost 618 698 781 739 776 814
Power and Fuel cost 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
Opex 3,302 3,616 3,863 3,953 4,093 4,278
EBITDA 995 1,122 896 1,027 1,191 1,358
Source: Company, Karvy Institutional Research
Exhibit 4: Estimates revision to factor in amalgamation of JP Gujarat unit; in FY15E the revenue and EBITDA upgrade
has been moderated as we factor in the lower than estimated 1QFY15 results
FY15E FY16E FY17E FY15E FY16E FY17E
Comments
(Rs mn) Revision YoY (%)
Net Revenues 248,206 297,118 341,849 4.2 7.3 7.3 Increase revenue and EBITDA to
factor in sales volume from the JP
Gujarat unit
Operating expenditure 197,041 230,167 259,485 4.3 7.6 7.5
EBITDA 51,165 66,952 82,364 3.5 6.0 6.8
Depreciation 13,092 15,786 17,631 14.0 20.7 12.4 Higher capital charges on account of
the new unit addition which has
Gross debt of ~Rs36bn; New plant
hence depreciation is higher
Other Income 4,031 4,300 4,600 26.0 26.5 35.3
EBIT 42,104 55,466 69,333 2.3 3.7 7.0
Interest expenditure 6,052 6,500 6,100 81.2 124.1 110.3
PBT 36,052 48,966 63,233 (4.6) (3.2) 2.1 Subsequently, the amalgamation
should moderate PAT growth Tax 10,095 14,200 18,970 (4.6) (7.9) 0.5
Adjusted PAT 25,958 34,766 44,263 (4.6) (1.1) 2.9
Source: Karvy Institutional Research
4
July 22, 2014
UltraTech
Financial Summary
Exhibit 5: Profit & Loss Statement (Standalone)
Year to March (Rs mn) FY13 FY14 FY15E FY16E FY17E
Net Revenues 201,800 202,798 248,206 297,118 341,849
% growth 10.2 0.5 22.4 19.7 15.1
Operating expenditure 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
EBIT 40,351 30,947 42,104 55,466 69,333
Interest expenditure 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
% growth 7.9 (22.8) 26.7 33.9 27.3
Source: Company, Karvy Institutional Research
Exhibit 6: Balance Sheet (Standalone)
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
Long term Investments 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
CWIP 35,054 20,416 18,000 17,000 25,000
Miscellaneous 1,733 1,943 1,974 2,002 2,072
Total assets 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
Shareholders' equity 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
Source: Company, Karvy Institutional Research
5
July 22, 2014
UltraTech
Exhibit 7: Cash Flow Statement (Standalone)
Year to March (Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 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)
Others 562 511 2,031 2,200 2,500
Cash flow from investing activities (43,025) (22,096) (57,629) (36,700) (36,400)
Incr / (decr) in borrowings 12,557 (2,092) 27,612 (12,269) (12,170)
Issuance of equity 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 Institutional Research
Exhibit 8: 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
Net debt: equity 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
Source: Company, Karvy Institutional Research
Exhibit 9: Valuation Parameters
Year to March 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) 26.0 33.8 26.7 19.9 15.6
P/BV (x) 4.5 4.0 3.6 3.1 2.6
EV/EBITDA (x) 14.2 17.6 13.9 10.2 7.8
EV/Sales (x) 3.3 3.4 2.9 2.3 1.9
EV/mt (USD) 215 202 179 172 162
Source: Company, Karvy Institutional Research
Institutional Equities Team Rahul Sharma
Head – Institutional Equities /
Research / Pharma +91-22 61844310 [email protected]
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INSTITUTIONAL RESEARCH
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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.
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Stock Ratings Absolute Returns Buy : > 15% Hold : 5 - 15% Sell : < 5%