ultratech cement (ultcem) | 4,408
TRANSCRIPT
January 19, 2018
ICICI Securities Ltd | Retail Equity Research
Result Update
One offs in Jaypee, petcoke dent margins…
UltraTech Cement’s results were below our estimates. Revenues
increased 35.3% YoY to | 7,589.9 crore (vs. I-direct estimate of | 7,057.3
crore) mainly led by 33.2% YoY increase in volumes to 15.1 MT (above
I-direct estimate of 14.1 MT) and 1.6% YoY increase in realisation to
| 5,026/t (vs. I-direct estimate of | 4,994/t)
Jaypee’s assets in Q3FY18 operated at 51% utilisation (exit utilisation
was at 60%) implying the company’s organic volume growth would
have been ~14% due to low base last year and improving demand
EBITDA margin declined 313 bps YoY to 16.7% (below I-direct estimate
of 20.6%) mainly due to higher power & fuel cost (up 55.8% YoY) and
freight expenses (up 37.0% YoY). EBITDA/t declined 14.4% YoY to
| 840/t (vs. I-direct estimate of | 1,029/t)
Capacity expansion to keep UltraTech ahead of its peers…
Considering the government’s focus on infrastructure development and the
impending election we expect budgetary allocation to infra projects to
increase in the coming year. Further, a pick-up in housing on the back of
healthy demand from first home buyers, better monsoons and a revival in
rural economy are expected to play a key role in driving cement demand in
the next few years. As a result, we expect cement demand to reach 306 MT
by FY19E (i.e. at CAGR of 7.5%) vs. (CAGR of 4.4% over the last five years)
resulting in improving utilisation to 71% by FY19E from 63% in FY17. Out of
total 35 MT capacity expansions by cement industry by FY19, 11 MT will be
added by UltraTech. Hence, UltraTech will continue to have a substantial
market share in the industry. This will enable it to not only capture the rising
demand but also help maintain its market leadership.
Despite cost pressures, operating efficiencies to drive margins
Over the past year, power cost has increased more than 30%. However,
UltraTech has been able to mitigate the rising power cost by increasing the
share of waste heat recovery (WHR) plant (8% of total capacity) with a
reduction in power consumption on a per tonne basis. Going forward, the
company is planning to further increase its WHR capacity by 26 MW and
increase the use of alternative fuel to 5% from 3%. Apart from this,
UltraTech has set up various grinding units, which will help reduce freight
cost. Further, improving realisation (led by improving capacity utilisation) is
expected to drive EBITDA margins in coming years.
Synergy benefits from Jaypee acquisition to materialise in long term
The consolidation of 21.2 MT cement assets of Jaiprakash Associates
(Jaypee) will take the company’s total capacity to ~96 MT. This will enable
the company to further strengthen its leadership in India, going forward, with
a market share of over ~22% and become the fourth largest player globally.
We believe the transaction will be cash break even by Q1FY19 and will be
EPS accretive by Q1FY20E.
Key beneficiary of cyclical upturn in cement demand; maintain BUY!
We believe the industry’s capacity utilisation has bottomed at ~63% in FY17.
Going forward, with the government taking measures to boost infrastructure
development, slowdown in capacity addition and consolidation in the
industry we expect utilisation to improve significantly (71% by FY19E). In
addition, with rising utilisation we expect pricing to improve in coming years.
We believe UltraTech being a pan-India player will be a key beneficiary of the
same. Further, cost rationalisation is expected to keep UltraTech ahead of its
peers in terms of profitability. Hence, we maintain our BUY rating on the
stock with a target price of | 5,000/share (i.e. at 18.0x FY19E EV/EBITDA).
UltraTech Cement (ULTCEM) | 4,408
Rating matrix
Rating : Buy
Target : | 5000
Target Period : 9-12 months
Potential Upside : 13%
What’s changed?
Target Price Changed from |4,750 to |5,000
EPS FY18E Changed from | 97.0 to 93.9
EPS FY19E Changed from | 136 to |142.1
Rating Unchanged
Quarterly performance
Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%)
Revenue 7,589.9 5,609.1 35.3 6,571.3 15.5
EBITDA 1,269.1 1,113.5 14.0 1,351.3 -6.1
EBITDA (%) 16.7 19.9 -313 bps 20.6 -384 bps
PAT 421.5 563.4 -25.2 431.2 -2.3
Key financials
| Crore FY16 FY17 FY18E FY19E
Net Sales 23708.8 23891.4 29755.6 36634.6
EBITDA 4626.6 4969.0 5837.3 8427.5
Net Profit 2370.2 2627.7 2577.6 3900.0
EPS (|) 86.4 95.8 93.9 142.1
Valuation summary
FY16 FY17 FY18E FY19E
PE (x) 51.0 46.0 46.9 31.0
EV to EBITDA (x) 26.9 24.1 23.2 15.9
EV/Tonne(US$) 306 279 243 233
Price to book (x) 5.8 5.1 4.8 4.3
RoNW (%) 11.3 11.1 10.1 13.7
RoCE (%) 11.7 12.4 9.5 14.1
Stock data
Amount
Mcap | 120956 crore
Consolidated Debt (FY17) | 20470 crore
Cash & Invest (FY17) | 8345 crore
EV | 133081 crore
52 week H/L | 4594 / | 3335
Equity cap | 274.2 crore
Face value | 10
Particular
Price performance
1M 3M 6M 12M
ACC 9.1 3.4 5.4 39.0
UltraTech Cement 5.4 13.5 7.6 36.1
Ramco Cement 11.3 14.3 10.6 30.0
Research Analyst
Rashesh Shah
Devang Bhatt
ICICI Securities Ltd | Retail Equity Research Page 2
g with a target price of | 4,750/share (i.e. at 17.5x FY19E EV/EBITDA).
Variance analysis
Q3FY18 Q3FY18E Q3FY17 YoY (%) Q2FY18 QoQ (%) Comments
Net Sales 7,589.9 7,057.3 5,609.1 35.3 6,571.3 15.5 Increase in volumes (up 33% YoY) led to 35% YoY rise in revenues
Other Incomes 155.6 106.7 97.0 60.4 168.0 -7.4 Reversal of District Mineral Fund of | 103 crore led to higher other income
Raw Material Expenses 1,331.0 984.9 923.6 44.1 915.3 45.4 The rise in RM cost was mainly led by higher slag prices and higher additive usage
Employee Expenses 462.8 443.7 364.7 26.9 444.0 4.3
Power and fuel 1,509.3 1,506.1 968.9 55.8 1,334.8 13.1
The increase in power & fuel cost was mainly due to higher pet coke prices (up 33%
YoY to US$104/t driven by pet coke ban and hike in import duty on pet coke) and
substitution of pet coke with imported coal
Freight 1,863.4 1,697.7 1,360.6 37.0 1,555.3 19.8
Rise in diesel prices (up 5% YoY) and changes in sales pattern (from ex-works to
FOR post-GST) led to higher freight cost during the quarter
Others 1,154.1 970.8 877.9 31.5 970.7 18.9
EBITDA 1,269.1 1,454.1 1,113.5 14.0 1,351.3 -6.1
EBITDA Margin (%) 16.7 20.6 19.9 -313 bps 20.6 -384 bps Increase in operating expenses dented margins
Depreciation 474.4 389.9 315.6 50.3 498.8 -4.9
Interest 347.2 375.9 129.3 168.5 375.9 -7.6
PBT 603.1 795.0 765.5 -21.2 644.7 -6.5
Total Tax 181.6 263.3 202.1 -10.1 213.5 -14.9
PAT 421.5 531.8 563.4 -25.2 431.2 -2.3 Rise in interest and depreciation expenses led to a decline in PAT
Key Metrics
Volume (MT) 15.10 14.13 11.34 33.2 13.14 14.9
Consolidation of Jaypee and 14% YoY increase in organic growth (due to low base
last year) led to higher volumes during the quarter
Realisation (|) 5,026 4,994 4,946 1.6 5,001 0.5 Healthy pricing in company's key markets helped in registering better realisation
EBITDA per Tonne (|) 840 1,029 982 -14.4 1,028 -18.3 EBITDA/t declined 14.4% YoY mainly led by higher power cost/t
Source: Company, ICICIdirect.com Research
Change in estimates
FY19E
(| Crore) Old* New % Change Old* New % Change Comments
Revenue 28,952.5 29,755.6 2.8 35,651.7 36,634.6 2.8
Improving macro demand and acquisition of Jaypee will drive
revenues over the next two years
EBITDA 6,148.4 5,837.3 -5.1 8,301.2 8,427.5 1.5
EBITDA Margin (%) 21.2 19.6 -162 bps 23.3 23.0 -28 bps
We believe operational efficiency and ramp up in Jaypee assets
will boost margins
PAT 2,660.7 2,577.6 -3.1 3,732.5 3,900.0 4.5
EPS (|) 97.0 93.9 -3.2 136.0 142.1 4.5
FY18E
Source: Company, ICICIdirect.com Research, * We have incorporated financials of Jaypee hence previous estimates are not comparable
Assumptions
Comments
FY14 FY15 FY16 FY17 FY18E FY19E FY18E FY19E
Volume (MT) 42.6 45.3 48.4 48.9 59.1 70.5 57.6 68.6
We expect volumes to increase at a CAGR of 20% over FY17-19E
led by Jaypee acquisition and higher infra spend
Realisation (|) 4,713 4,995 4,894 4,883 5,035 5,200 5,024 5,198
EBITDA per Tonne (|) 849 863 952 1,015 988 1,196 1,067 1,210
We expect EBITDA/t to improve to | 1,196/t in FY19E from |
1,015/t in FY17 mainly led by cost rationalisation
EarlierCurrent
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Annual Report Analysis
The company’s domestic cement capacity during the year increased 2%
YoY to 66.3 MT. However, capacity utilisation declined from 76% to
72% mainly led by a miniscule increase in volumes (from 47.6 MT in
FY16 to 47.9 MT in FY17) and a higher capacity base
Going forward, the company intends to set up 3.5 MT capacity in Dhar,
Madhya Pradesh at a cost of | 2600 crore. The capacity is expected to
be operational by Q4FY19. Apart from organic growth, acquisition of
21.2 MT capacity of Jaiprakash Associate will take total domestic
capacity to ~93 MT enabling UltraTech to maintain its leadership
position
In FY17, the company undertook various cost saving measures that led
to 1.9% YoY decline in cost/tonne. In terms of power & fuel cost, the
company reported a decline of 8.3% YoY mainly due to an increase in
usage of petcoke (from 70% in FY16 to 74% in FY17), industrial waste,
and efficiency improvements. Besides petcoke, increase in share of
waste heat recovery to 7% of total power requirement of the company
led to reduced consumption of coal and petcoke (by ~0.25 MT). In
addition, logistic cost/t declined 2.5% YoY mainly led by a reduction in
the average lead distance, improved utilisation of new cement grinding
capacity, rationalisation of road freight rates and increased coastal
movement. However, employee cost increased 5.2% YoY due to annual
increments and commissioning of new plants
Finance cost during the year increased by | 59 crore to | 571 crore
mainly led by provision for interest on entry tax pertaining to earlier
years and lower benefit of interest subsidy due to the completion of the
government grant period
Cash from operations of the company increased 11.5% YoY mainly led
by higher margins and reduction in working capital requirement.
Inventory days of the company declined from 40 days to 36 days mainly
due to a reduction in inventory of stores and spares
During the year, the company incurred a capex of ~| 1,200 crore for
completion of new grinding capacity commissioned during the year and
meeting regulatory requirements, plant upkeep & improving efficiencies.
For FY18E, the company plans to incur capex of | 2,200 crore for
capacity expansion projects, regulatory requirements and plant
infrastructure
Exhibit 1: Fuel mix trend
Fuel mix FY12 FY13 FY14 FY15 FY16 FY17
Petcoke (%) 26 38 48 52 70 74
Imported coal (%) 44 35 26 26 20 14
Indigenous coal and others (%) 30 27 26 22 10 12
Total 100 100 100 100 100 100
Source: Company, ICICIdirect.com Research
Exhibit 2: Transport mix trend
Transport mix FY12 FY13 FY14 FY15 FY16 FY17
Rail (%) 36 34 34 29 28 25
Road (%) 61 63 63 67 69 72
Sea (%) 3 3 3 4 3 4
Total 100 100 100 100 100 100
Source: Company, ICICIdirect.com Research
WHRMS capacity and share
10.5
33.2
59 59
0
20
40
60
80
FY14 FY15 FY16 FY17
0
2
4
6
8
WHRMS capacity WHRMS share
ICICI Securities Ltd | Retail Equity Research Page 4
Improving industry dynamics indicate long term up cycle in cement
Over FY08-17, utilisation in the cement sector witnessed a decline from 83%
in FY08 to 63% in FY17 mainly due to capacity addition (incremental supply
of 222 MT) outpacing demand (incremental demand of 101 MT). As a result,
industry capacity doubled from 198 MT in FY08 to 420 MT in FY17 vs.
demand, which increased from 164 MT in FY08 to 265 MT in FY17. However,
we expect the demand-supply balance to improve in the next few years with
slower pace of capacity addition and likely improvement in demand
positively impacting utilisation levels. Cement sector utilisation is expected
to improve from 63% in FY17 to 71% in FY19E leading to higher margins for
cement players (driven by operating leverage benefits).
Exhibit 3: Demand supply scenario
198216
276304
319
357 368392
409 420 424 430
306
164178
203214
229241
247255
264 265 284
0
100
200
300
400
500
FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18E FY19E
0
20
40
60
80
100
Capacity Demand Utilisation (%)
Source: ICICIdirect.com Research
Demand expected to register strong growth in FY17-19E
The company has indicated that demand will improve in the south mainly
led by an improvement in infrastructure, irrigation, especially in Andhra
Pradesh, Telangana and Amaravati. Further, western region is expected to
witness healthy growth led by a pick-up in demand from Mumbai (mainly led
by metro projects and coastal roads). In addition, demand in the north is
expected to be driven by higher infra spend. However, demand in the urban
region is expected to remain subdued due to RERA compliance and high
unsold inventory.
Key takeaways in Q3FY18 from the conference call:
Demand in North and East have improved significantly due to higher
infra spend while demand in Bihar and Tamil Nadu was impacted by
sand mining issue
Capacity utilisation region wise was: North 80%, West 70%, East
80%, South 53% and Central 60%
During Q3FY18, average utilisation of Jaypee assets was 51% while
exit utilisation was 60%. During the quarter, the company had one
offs in terms of maintenance shutdown and other expenses
amounting to | 200/t
Pet coke prices have increased 33% to US$104/t Q3FY18. The
company has switched to imported coal during the quarter. The
usage of pet coke is completely banned in CPP while petcoke is
allowed to be used in cement kiln
The company is aiming to increase its WHRMS capacity by 26 MW
from the current 58 MW. Further, it is aiming to increase its industrial
waste usage from 3% to 5%
ICICI Securities Ltd | Retail Equity Research Page 5
In terms of transport mix, 73% was through road, 24% was via rail
while the rest was through sea
In terms of fuel mix, pet coke accounts for 70% of overall fuel mix
while industrial waste is 3%, imported coal is 17% and others is 9%
The company will add 11 MT of capacity vis-à-vis 35 MT of capacity
addition of the Industry
Q4FY18 is expected to witness healthy growth
Exhibit 4: Region-wise demand trend
Source: Company, ICICIdirect.com Research
Operate at healthy EBITDA/tonne vis-à-vis industry
Exhibit 5: Gradual reduction in power requirement
Power mix FY12 FY13 FY14 FY15 FY16 FY17
TPP 78.0 79.0 81.0 82.0 82.0 80.0
WHRS 0.4 0.3 0.3 2.0 5.0 7.0
Others 22.0 21.0 19.0 16.0 13.0 13.0
Total 100.4 100.3 100.3 100.0 100.0 100.0
Source: Company, ICICIdirect.com Research,*FY14,FY16 figures provisional
Exhibit 6: Higher EBITDA/tonne vis-à-vis peer group
832
894 1,0
12
1,0
78
1,0
33
982
931
1,1
82
1,0
28
738
711 835 9
85
928
786
747
1,0
08
886
-
200
400
600
800
1,000
1,200
1,400
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
EB
ITD
A/tonne (
|)
Ultratech Industry
Source: Company, ICICIdirect.com Research
Peer set includes ACC, Ambuja, Shree cement and India cement
ICICI Securities Ltd | Retail Equity Research Page 6
Expect revenue CAGR of 23.8% during FY17-19E
Revenues have grown at a CAGR of 5.6% in FY12-17 mainly led by moderate
volume growth at 3.3% CAGR and realisation growth at 2.2% CAGR in FY12-
17. However, in FY17-19E, we expect volume CAGR of 20% in FY17-19E
mainly led by higher infra spend by the government and acquisition of
Jaypee’s assets. Further, we expect realisation to increase at 3.2% CAGR in
FY17-19E led by a pick-up in demand. Consequently, revenues are expected
to grow at 23.8% CAGR in the next two years.
Exhibit 7: Expect volume led revenue CAGR of 23.8% in FY17-19E
20021 20078
2265223709 23891
29756
36635
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Sales (| crore)
Source: Company, ICICIdirect.com Research
Exhibit 8: Capacity addition plans (standalone)
Unit Grey Cement
Opening FY17 66.3
Additions Q1FY18 Bihar 1.6
Q2FY18 Jaypee 21.2
Q4FY19 Dhar, MP 3.5
Q1FY20 Pali, Rajasthan 3.5
Closing FY20 96.1
Source: Company, ICICIdirect.com Research
Exhibit 9: Volume to grow at 20% CAGR in FY17-19E
42.645.3
48.4 48.9
59.1
70.5
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
FY14 FY15 FY16 FY17 FY18E FY19E
Sales Volumes
Source: Company, ICICIdirect.com Research
Exhibit 10: Realisation to pick up led by uptick in demand
4713
4995
4894 4883
5035
5200
4400
4500
4600
4700
4800
4900
5000
5100
5200
5300
FY14 FY15 FY16 FY17 FY18E FY19E
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Realisation (|/tonne) -LS Growth (%) -RS
Source: Company, ICICIdirect.com Research
Exhibit 11: Volume flat in Q3FY18…
11.111.6
13.613.2
11.2 11.3
13.713.2 13.1
15.1
0
2
4
6
8
10
12
14
16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Million T
onne
Sales Volume
Source: Company, ICICIdirect.com Research
Exhibit 12: Quarterly realisation trend
4872
4708
4719
4882
4946
4801 5020
5001
5026
4000
4250
4500
4750
5000
5250
5500
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
(|
)
Realisation
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 7
Margins to improve led by operating efficiency
Going forward, cost per tonne is expected to increase led by acquisition of
Jaypee Cement. However, the pick-up in demand, improving utilisation and
EBITDA/t at Jaypee in coming quarters are expected to lead to an
improvement in margins in FY19E.
Exhibit 13: Expect EBITDA/tonne of | 1,196 in FY19E
1084
849 863
9521015 988
1196
0
200
400
600
800
1000
1200
1400
FY13 FY14 FY15 FY16 FY17 FY18E FY19E
EBITDA/Tonne
Source: Company, ICICIdirect.com Research
Exhibit 14: Margins to improve led by improvement in realisations
22.6
18.017.3
19.5
20.8
19.6
23.0
10.0
15.0
20.0
25.0
30.0
FY13 FY14 FY15 FY16 FY17 FY18E FY19E
EBITDA Margin (%)
Source: Company, ICICIdirect.com Research
Exhibit 15: Q3FY18 EBITDA per tonne at | 840/t
894
10121078
1033982
931
1182
1028
840
0
200
400
600
800
1000
1200
1400
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
| p
er t
onne
Source: Company, ICICIdirect.com Research
Exhibit 16: Quarterly margin trend
18.3
21.5
22.821.2 19.9
19.4
23.5
20.616.7
0
5
10
15
20
25Q
3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
(%
)
EBITDA Margin
Source: Company, ICICIdirect.com Research
Expect net profit CAGR of 18.1% during FY17-19E
In FY18E we expect a dip in net margins mainly due to higher interest and
depreciation expenses (mainly led by acquisition of Jaypee). However, we
expect margins to improve in FY19E led by higher utilisation at Jaypee and a
better operational performance.
Exhibit 17: Profitability trend
2370.22655.62144.5
2014.7
2627.72577.6
3900.0
13.3
10.7
8.9 10.0
11.0
8.7
10.6
0
1000
2000
3000
4000
5000
FY13 FY14 FY15 FY16 FY17E FY18E FY19E
| c
rore
0.0
5.0
10.0
15.0
(%
)
Net profit - LS Net profit margin -RS
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 8
Outlook and valuation
We believe the industry’s capacity utilisation bottomed at ~64% in FY17.
With the government taking measures to boost infrastructure development
through steps like long-term fund availability for major infra projects and
higher budgetary allocation towards public infrastructure development, we
expect robust cement demand growth in FY17-19E to reach 306 MT by
FY19E i.e. at 7.5% CAGR vs. 4.7% CAGR over the last five years). The
company expects government infra spends to gain momentum, especially
on construction of concrete roads and creation of new capital city of
Amaravati in Andhra Pradesh. UltraTech is well positioned to reap the
benefit of a recovery in demand and generate healthy free cash flows in
future. We assign premium valuations multiple to UltraTech vs. its peer
companies due to its ability to generate higher margins and healthy cash
flows. Hence, we maintain our BUY rating on the stock with a target price of
| 5,000/share (i.e. at 18.0x FY19E EV/EBITDA
Exhibit 18: Key assumptions
| per tonne FY15 FY16 FY17 FY18E FY19E
Sales Volume* 45 48 49 59 70
Net Realisation* 4995 4894 4883 5035 5200
Total Expenditure 4132 3939 3867 4047 4003
Raw material 785 820 822 805 720
Power & Fuel 1046 875 802 986 1030
Freight 1190 1225 1195 1216 1216
Employees 269 277 289 307 307
Others 842 741 759 733 730
EBITDA per Tonne 863 952 1015 988 1196
Source: ICICIdirect.com Research; * Blended (grey + white + clinker)
ICICI Securities Ltd | Retail Equity Research Page 9
Exhibit 19: One year forward EV/EBITDA
10000
30000
50000
70000
90000
110000
130000
150000
170000
190000
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
(|
Crore)
EV 21.5x 18.5x 16.5x 14.5x 10.5x
Source: Company, ICICIdirect.com Research
Exhibit 20: One year forward EV/Tonne
0
5000
10000
15000
20000
25000
30000
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Million $
EV $270 $225 $175 $125 $80
Source: Company, ICICIdirect.com Research
Exhibit 21: Valuation
Sales Growth EPS Growth PE EV/Tonne EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) ($) (x) (%) (%)
FY15 22651.5 12.8 73.4 -6.1 60.0 331 32.1 10.7 10.6
FY16 23708.8 4.7 86.4 17.6 51.0 306 26.9 11.3 11.7
FY17 23891.4 0.8 96.3 11.4 46.0 279 24.1 11.1 12.4
FY18E 29755.6 25.5 93.9 -2.4 46.9 243 23.2 10.1 9.5
FY19E 36634.6 53.3 142.1 51.3 31.0 233 15.9 13.7 14.1
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
Recommendation History vs. Consensus Estimates
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Jan-18Nov-17Aug-17Jun-17Mar-17Jan-17Nov-16Aug-16Jun-16Mar-16Jan-16Oct-15Aug-15Jun-15Mar-15Jan-15
(|
)
0.0
20.0
40.0
60.0
80.0
100.0
(%
)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
Sep-13 Announces that the company will acquire 4.8 MT of Gujarat Cement plant of Jaypee Cement. Other than this, ~ 10 MTPA capacity will be commissioned by FY15.
Total cement capacity is expected to reach ~70 MTPA
Jun-14 Company starts including Jaypee Cement operations in quarterly result from Q1FY15
Sep-14 Commissions 1.4 MT cement mill at Karnataka and 25 MW power plant at AP
Dec-14 Board approves acquisition of cement business of Jaiprakash Associates in MP with capacity of 4.9 MT
Aug-15 Commissions a bulk terminal with a capacity of 2 MT in Pune, Maharashtra.
Sep-15 Commissions a cement grinding unit with a capacity of 1.6 MT at Jhajjar, Haryana.
Sep-15 Commissions a cement grinding unit with a capacity of 1.6 MT at Dankuni, West Bengal.
Dec-15 Compat sets aside the Competition Commission of India (CCI) order of alleged cartelisation
Feb-16 The company signs binding MoU with Jaiprakash Associate to acquire 22.4 MT cement capacity
Apr-16 Commissions a cement grinding unit with a capacity of 1.6 MT at Patliputra, Bihar.
Jan-17 The board approves setting up of 3.5 mt integrated plant at Dhar, Madhya Pradesh and is expected to be operational by Q4FY19
Jun-17 Completion of acquisition of Jaypee assets (~21.2 MT)
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Name Last filing date % O/S Position (m) Change (m)
1 Aditya Birla Group 30-Sep-17 60.2 165.3 0.00
2 Life Insurance Corporation of India 30-Sep-17 2.20 6.04 0.00
3 OppenheimerFunds, Inc. 30-Nov-17 1.62 4.45 0.00
4 Aberdeen Asset Management (Asia) Ltd. 30-Nov-17 1.57 4.31 0.00
5 Aberdeen Asset Managers Ltd. 30-Nov-17 1.18 3.25 0.00
6 The Vanguard Group, Inc. 31-Dec-17 1.05 2.88 0.01
7 Capital World Investors 30-Sep-17 1.03 2.84 (0.91)
8 Capital Research Global Investors 30-Sep-17 1.03 2.84 (0.91)
9 Franklin Advisers, Inc. 31-Dec-17 0.96 2.64 0.00
10 BlackRock Institutional Trust Company, N.A. 31-Dec-17 0.96 2.64 0.00
(in %) Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
Promoter 62.26 62.16 62.14 62.13 62.05
FII 20.83 21.87 21.89 22.14 22.20
DII 6.27 5.51 5.53 5.55 5.67
Others 10.64 10.36 10.44 10.18 10.08
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor Name Value Shares Investor Name Value Shares
DSP BlackRock Investment Managers Pvt. Ltd. 6.68 0.10 Capital Research Global Investors -53.80 -0.91
Nomura Asset Management Singapore Ltd. 2.59 0.04 Capital World Investors -53.80 -0.91
SBI Funds Management Pvt. Ltd. 1.48 0.02 BNP Paribas Asset Management Asia Limited -7.99 -0.12
Fidelity Management & Research Company 0.95 0.01 Invesco Hong Kong Limited -4.09 -0.07
Aletti Gestielle SGR S.p.A. 0.94 0.01 Grantham Mayo Van Otterloo & Co LLC -3.36 -0.05
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
Financial summary
Profit and loss statement | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Total operating Income 23,708.8 23,891.4 29,755.6 36,634.6
Growth (%) 4.7 0.8 24.5 23.1
Raw material cost 3972.8 4024.5 4757.7 5072.9
Power & Fuel cost 4240.8 3926.6 5826.7 7257.1
Freight cost 5934.9 5845.2 7185.8 8567.6
Employees cost 1343.0 1413.4 1816.8 2166.0
Others 3590.7 3712.8 4331.3 5143.4
Total Operating Exp. 19,082.2 18,922.5 23,918.3 28,207.1
EBITDA 4,626.6 4,969.0 5,837.3 8,427.5
Growth (%) 18.2 7.4 17.5 44.4
Depreciation 1,297.0 1,267.9 1,663.0 2,022.2
Interest 511.7 571.4 1,198.7 1,377.1
Other Income 480.7 660.0 752.9 741.0
PBT 3,298.6 3,789.6 3,728.4 5,769.2
Total Tax 928.4 1148.2 1150.9 1869.2
PAT 2,370.2 2,641.4 2,577.6 3,900.0
Growth (%) 17.6 11.4 -2.4 51.3
Adjusted EPS (|) 86.4 96.3 93.9 142.1
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Profit after Tax 2,370.2 2,627.7 2,577.6 3,900.0
Add: Depreciation 1,297.0 1,267.9 1,663.0 2,022.2
(Inc)/dec in Current Assets 224.0 1,016.0 -2,521.1 -185.7
Inc/(dec) in CL and Provisions 70.6 -490.8 3,064.0 -711.4
CF from operating activities 3,961.8 4,420.7 4,783.5 5,025.0
(Inc)/dec in Investments 495.4 -3,378.3 2,500.0 0.0
(Inc)/dec in Fixed Assets -2,379.0 -1,274.9 -19,663.0 -2,621.6
Others 435.4 111.2 0.0 0.0
CF from investing activities -1,448.3 -4,542.0 -17,163.0 -2,621.6
Issue/(Buy back) of Equity 0.0 0.1 0.0 0.0
Inc/(dec) in loan funds 252.7 -1,396.3 12,230.0 -1,500.0
Dividend paid & dividend tax -313.8 -320.9 -802.6 -866.8
Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0
Others -23.1 422.2 0.0 0.0
CF from financing activities -84.1 -1,294.9 11,427.4 -2,366.8
Net Cash flow 2,034.7 -338.4 -952.1 36.6
Opening Cash 200.5 2,235.2 1,896.8 944.7
Closing Cash 2,235.2 1,896.8 944.7 981.3
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Liabilities
Equity Capital 274.4 274.5 274.5 274.5
Reserve and Surplus 20,616.5 23,345.5 25,120.5 28,153.6
Total Shareholders funds 20,890.9 23,620.1 25,395.0 28,428.1
Total Debt 7,667.9 6,271.6 18,501.6 17,001.6
Deferred Tax Liability 3,227.4 3,338.6 3,338.6 3,338.6
Minority Interest / Others 0.0 0.0 0.0 0.0
Total Liabilities 31,786.2 33,230.3 47,235.2 48,768.3
Assets
Gross Block 34,551.9 36,364.0 56,027.0 59,527.0
Less: Acc Depreciation 11,864.4 13,132.3 14,795.3 16,817.5
Net Block 22,687.6 23,231.7 41,231.7 42,709.5
Capital WIP 1,415.6 878.4 878.4 0.0
Total Fixed Assets 24,103.1 24,110.1 42,110.1 42,709.5
Investments 5,108.1 7,408.7 4,908.7 4,908.7
Inventory 2,426.1 2,225.0 3,563.1 3,563.1
Debtors 1,414.9 1,276.2 2,082.5 2,052.6
Loans and Advances 2,676.0 643.9 843.9 914.6
Other Current Assets 43.5 1,399.5 1,576.1 1,721.0
Cash 2,235.2 1,896.8 944.7 981.3
Total Current Assets 8,795.7 7,441.3 9,010.3 9,232.6
Creditors 5,094.1 1,713.8 6,764.5 3,673.8
Provisions 1,126.7 4,016.1 2,029.4 4,408.6
Total Current Liabilities 6,220.7 5,729.9 8,793.9 8,082.4
Net Current Assets 2,574.9 1,711.5 216.4 1,150.2
Others Assets 0.0 0.0 0.0 0.0
Application of Funds 31,786.2 33,230.2 47,235.2 48,768.3
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) FY16 FY17 FY18E FY19E
Per share data (|)
EPS 86.4 96.3 93.9 142.1
Cash EPS 133.6 142.0 154.5 215.8
BV 761.3 860.8 925.5 1,036.0
DPS 9.5 10.0 25.0 27.0
Cash Per Share 81.5 69.1 34.4 35.8
Operating Ratios (%)
EBITDA Margin 19.5 20.8 19.6 23.0
PBT / Total Operating income 13.9 15.8 12.5 15.7
PAT Margin 10.0 11.0 8.7 10.6
Inventory days 39.9 35.5 35.5 35.5
Debtor days 20.2 20.6 20.6 20.6
Creditor days 76.5 52.0 52.0 52.0
Return Ratios (%)
RoE 11.3 11.1 10.1 13.7
RoCE 11.7 12.4 9.5 14.1
RoIC 12.8 14.8 9.8 14.3
Valuation Ratios (x)
P/E 51.0 46.0 46.9 31.0
EV / EBITDA 26.9 24.1 23.2 15.9
EV / Net Sales 5.2 5.0 4.6 3.7
Market Cap / Sales 5.1 5.1 4.1 3.3
Price to Book Value 5.8 5.1 4.8 4.3
Solvency Ratios
Debt/EBITDA 1.7 1.3 3.2 2.0
Debt / Equity 0.4 0.3 0.7 0.6
Current Ratio 1.4 1.3 1.0 1.1
Quick Ratio 1.1 1.0 0.9 1.0
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
ICICIdirect.com coverage universe (Cement)
CMP M Cap
(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
ACC* 1,837 2100 Buy 34,525 40.2 48.4 66.0 24.8 21.4 16.6 177 156 155 11.3 14.0 16.5 8.7 9.9 12.3
Ambuja Cement* 276 315 Buy 54,804 5.0 5.8 7.2 23.1 20.9 16.1 194 180 180 4.0 6.1 8.1 5.2 5.9 7.0
UltraTech Cem 4,408 5000 Buy 120,956 96.3 93.9 142.1 24.1 23.2 15.9 279 243 233 12.4 9.5 14.1 11.1 10.1 13.7
Shree Cement 18,450 20500 Hold 64,206 384.8 399.2 499.1 25.4 24.0 18.2 374 360 292 13.0 15.3 16.5 17.4 15.5 16.6
Heidelberg Cem 163 165 Hold 3,694 3.4 4.8 7.8 18.2 13.8 11.1 140 135 130 8.2 12.0 15.9 7.9 10.7 16.1
India Cement 183 215 Buy 5,622 5.4 3.6 8.6 9.9 11.4 8.8 92 91 89 7.5 6.1 8.4 3.3 2.1 4.9
JK Cement 1,147 1235 Buy 8,021 37.1 52.6 57.9 15.9 12.2 11.0 142 131 127 12.6 15.2 16.3 14.5 16.9 15.8
JK Lakshmi Cem 441 470 Buy 5,191 7.0 11.3 21.5 18.6 13.5 9.7 97 86 79 7.5 10.9 15.1 5.9 8.8 14.5
Mangalam Cem 421 415 Buy 1,124 12.9 19.3 34.2 13.0 9.7 7.2 62 59 55 10.2 13.6 17.8 6.8 9.3 14.3
Star Cement 134 120 Hold 5,393 4.1 6.2 5.7 14.8 11.1 11.1 264 254 239 13.8 18.3 16.8 14.0 18.1 14.8
Ramco Cement787 822 Buy 18,737 27.3 25.3 29.2 17.0 17.7 15.4 202.3 204.7 191.0 12.7 10.8 11.6 17.4 14.9 15.3
RoCE (%) RoE (%)
Company
EV/Tonne ($)EV/EBITDA (x)EPS (|)
*CY16, CY17E CY18E
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 13
RATING RATIONALE
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as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
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ICICIdirect.com Research Desk,
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ICICI Securities Ltd | Retail Equity Research Page 14
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