21 may 2020 results review 4qfy20 ultratech cement cement...ultratech cement hsie research is also...

21 May 2020 Results Review 4QFY20

UltraTech Cement

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Robust margin and leverage performance

We maintain BUY rating on UltraTech Cement with a TP of Rs 4,720 (15x FY22

consol EBITDA). In FY20, UltraTech’s profits surged, and it also reduced its

working capital and debt on books. In FY21E, we expect falling energy costs to

moderate the impact of an expected sharp 16% vol decline. However, we build

in 21% vol recovery in FY22E (owing to its robust distribution) as demand

normalises to drive earnings rebound in FY22E. In Q4FY20, amid sharp 16%

vol fall (covid impact), falling energy costs and increased fixed cost controls

boosted op margin to Rs 1,139/MT (+14% YoY).

Healthy profits despite weak volumes: Subdued growth in Jan/Feb-20 and

10-days sales loss in Mar-20 pulled down consol grey cem vol by 16% YoY to

24.3mn MT. White/putty vols fell 22% YoY to 0.32mn MT. Blended NSR rose

1% QoQ on price hike taken in 4Q, thus bolstering YoY gain at +3%. Unitary

opex stood flat YoY, aided by fall in input costs (lower petcoke prices,

reduction in fuel consumption rate, increased blended cem). However, the

benefit was moderated on neg op-lev. Healthy pricing thus boosted unitary

EBITDA to solid Rs 1,139/MT (+14% YoY), restricting consol EBITDA decline

by 4% YoY. APAT grew 6% YoY on higher treasury gains and lower tax rate.

FY20 – Strong cash generation, debt reduction: While annual vol declined

4% YoY, NSR gained 5% YoY on healthy pricing during the year. This

coupled with 1% opex decline buoyed unitary EBITDA 34% YoY to Rs

1,142/MT (its all-time high). Thus, consol EBITDA/APAT jumped 28/51%

YoY. Additionally, the co reduced its working capital. These boosted OCF to

Rs 89bn (+50% YoY). As capex remained flat YoY at Rs 17bn, UTCEM’s net

debt fell 25% to Rs 164bn. Net Debt/EBITDA cooled off to 1.8x vs 3x YoY.

Concall/ capex updates: Nathdwara plant integration achieved in Q4.

Century plant’s brand integration achieved ~65% production. Falling

petcoke prices’ benefits to continue in FY21. Overall plant utilisation

improving MoM in May, mainly driven by retail demand. The Dalla Super

clinker plant is expected by Mar-21E, the upcoming SGUs (in UP and in

Eastern regions) to be delayed by at least six months owing to Covid impact.

Maintain BUY: We expect FY21E consol vol to fall 16% on sharp loss in 1H,

however, we build in 21% recovery in FY22E. The profit impact in FY21

should be moderated by falling energy cost and lower discretionary spends.

We maintain BUY with a TP of Rs 4,720 (15x FY22 consol EBITDA). We

continue to ascribe it premium valuations (10% higher vs its 10yr avg) for its

capacity & cost leadership and balance sheet discipline.

YE Mar

(Rs bn)

4Q

FY20

4Q

FY19

YoY

(%)

3Q

FY19

QoQ

(%) FY18 FY19 FY20 FY21E FY22E

Net Sales 107.5 123.7 (13.1) 103.5 3.8 309.8 416.1 421.2 352.4 426.3

EBITDA 24.4 25.4 (3.9) 21.1 16.0 61.5 73.5 94.2 81.8 97.0

APAT 11.3 10.6 6.2 8.0 40.9 25.7 25.1 37.9 30.7 41.6

AEPS (Rs) 39.2 38.8 1.1 27.8 40.9 93.6 91.3 131.3 106.4 144.1

EV /EBITDA (x)

18.9 16.9 12.6 14.1 11.5

EV/MT (Rs bn)

13.1 11.0 10.3 9.8 9.2

P/E (x)

39.8 40.8 27.0 33.3 24.6

RoE (%)

10.1 8.3 10.4 7.6 9.5

Source: Company, HSIE Research, Consolidated Financials

BUY

CMP (as on 20 May 2020) Rs 3,529

Target Price Rs 4,720

NIFTY 9,067

KEY

CHANGES OLD NEW

Rating Buy Buy

Price Target Rs 4,850 Rs 4,720

EBITDA % FY21E FY22E

(4.4) (3.1)

KEY STOCK DATA

Bloomberg code UTCEM IN

No. of Shares (mn) 289

MCap (Rs bn) / ($ mn) 1,018/13,463

6m avg traded value (Rs mn) 2,409

52 Week high / low Rs 4,905/2,910

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) (20.3) (14.2) (26.1)

Relative (%) 4.8 10.0 (4.4)

SHAREHOLDING PATTERN (%)

Dec-19 Mar-20

Promoters 60.19 59.70

FIs & Local MFs 13.07 14.15

FPIs 17.60 16.48

Public & Others 9.14 9.67

Pledged Shares 0.0 0.0

Source : BSE

Rajesh Ravi

[email protected]

+91-22-6171-7352

Saurabh Dugar

[email protected]

+91-22-6171-7353

Page | 2

UltraTech Cement: Results Review 4QFY20

Quarterly Consolidated Financial Snapshot

Particulars (Rs mn) 4QFY20 4QFY19 YoY (%) 3QFY20 QoQ (%)

Net Sales 107,456 123,706 (13.1) 103,538 3.8

Raw Materials 14,540 23,212 (37.4) 17,881 (18.7)

Power and Fuel 21,181 25,858 (18.1) 20,394 3.9

Employee 6,550 5,655 15.8 6,200 5.6

Transport 26,786 29,371 (8.8) 23,438 14.3

Other Exp 13,973 14,200 (1.6) 14,562 (4.0)

EBITDA 24,427 25,410 (3.9) 21,062 16.0

EBITDA margin (%) 22.7 20.5 219 20.3 239

Depreciation 6,724 6,409 4.9 6,730 (0.1)

EBIT 17,703 19,001 (6.8) 14,332 23.5

Other Income (Including EO Items) 23,099 1,306 1,669.4 776 2,878.5

Interest Cost 5,048 5,046 0.1 4,708 7.2

PBT - Reported 35,754 15,261 134.3 10,400 243.8

Tax 3,346 4,605 (27.4) 3,288 1.8

Tax rate (%) 9.4 30.2 (2,082) 31.6 (2,226)

(Min Intt)/ Sh of Assoc 19 (12) 8 151.9

RPAT 32,428 10,643 204.7 7,119 355.5

EO (Loss) / Profit (Net Of Tax) 21,120 - (906)

APAT 11,308 10,643 6.2 8,025 40.9

Adj PAT margin (%) 10.5 8.6 192 7.8 277

Source: Company, HSIE Research

Quarterly Performance Analysis (Grey+ white/putty)

Particulars 4QFY20 4QFY19 YoY (%) 3QFY20 QoQ (%)

Installed capacity Grey (mn MT) 28.5 28.0 1.8 28.0 1.8

Grey Sales Volume (mn MT) 21.1 25.0 (15.6) 20.6 2.8

Grey utilisation (%) 74.2 89.5 73.5

Total sales volume (mn MT) 21.4 25.4 (15.7) 20.9 2.6

Trends (Rs/MT)

Net avg realisation 5,012 4,865 3.0 4,954 1.2

Raw material cost 678 913 (25.7) 856 (20.7)

Power and fuel cost 988 1,017 (2.8) 976 1.2

Employee cost 305 222 37.4 297 3.0

Transport cost 1,249 1,155 8.2 1,121 11.4

Other expenses (includes clinker tx) 652 558 16.7 697 (6.5)

Operating cost 3,873 3,865 0.2 3,946 (1.9)

EBITDA 1,139 999 14.0 1,008 13.1


The co booked Rs 21.1bn as

deferred tax liability

reversals in 4Q, factoring

in the adjustments due to

changes in the cop tax rate.

We have excluded the same

from APAT (and

considered as exceptional

for 4Q). Reported PAT

surged 2x/3.6x YoY to Rs

32.5bn.

Grey vols fell 16% YoY and

white/putty vol fell 22%

YoY.

Despite lower vols, margin

expanded on account of

falling fuel prices,

increased energy efficiency

and higher blended cement

prod. The co has also

streamlined Nathdwara

operations and has

achieved brand integration

for 65% of Century plants’

production, thereby

boosting margin

Page | 3


Operational Trends and Assumptions

Particulars FY17 FY18 FY19 FY20 FY21E FY22E

Cement Cap (mn MT) 71.6 88.8 113.2 115.6 117.6 121.0

Sales Volume (mn MT) 53.7 64.6 85.8 82.5 69.0 83.5

YoY change (%) 2.1 20.3 32.7 (3.8) (16.3) 21.0

Utilisation (%) 75.0 72.8 75.8 71.4 58.7 69.0

(Rs/ MT trend)

NSR 4,724 4,794 4,851 5,106 5,106 5,106

YoY change (%) (1.2) 1.5 1.2 5.3 - -

Raw material cost 822 818 814 765 742 768

Power and fuel cost 795 980 1,100 1,026 924 951

Transport cost (in + out) 1,099 1,131 1,203 1,179 1,138 1,172

Employee cost 283 280 267 304 374 347

Other expenses 754 633 611 690 742 706

Total Opex 3,754 3,843 3,995 3,965 3,920 3,944

EBITDA per MT 970 951 857 1,141 1,186 1,162


Change in Estimates

Rs Mn FY21E Old

FY21E

Revised Change %

FY22E

Old

FY22E

Revised Change %

Net Revenues 398,672 352,439 (11.6) 452,582 426,277 (5.8)

EBITDA 85,628 81,846 (4.4) 100,080 97,023 (3.1)

APAT 31,958 30,723 (3.9) 42,654 41,588 (2.5)

AEPS 110.7 106.4 (3.9) 147.8 144.1 (2.5)


We have updated our fin

model for FY19/20 consol

P&L, BS and CF

statements as reported.

UltraTech’s vol fell 4%

YoY in FY20. We model in

16% fall in FY21 on Covid

impact, but expect it to

recover in FY22E

We factor in stable NSR

during FY21/22E. This

along with low energy

costs to sustain op margin

at ~Rs1,170/MT levels in

FY21/22E

We cut vol est by 12/6% for

FY21/22E factoring in

higher impact of Covid

lockdown on demand

However, we increase

margin est owing to lower

cost pressure

Thus, we trim EBITDA est

by 4/3% for FY21/22E

Page | 4


Long term op performance trends (TTM basis)

We have plotted UltraTech Cement’s operating metrics on trailing 12-month (TTM)

basis, to assess its long term performance trends

UltraTech Cement’s vol declined 4% YoY in FY20 after a

gap of seven yrs!!

NSR continued to firm up on healthy pricing in many

mkts and increased brand integration for Century



Cost controls and falling petcoke and diesel prices kept

opex inflation in check

Opex trends: Stable fixed costs, falling input and

logisitcs cost

Source: Company, HSIE Research Source: Company, HSIE Research

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Rs /MT Rs /MT

Page | 5


Long term performance trends (TTM basis) continued

UltraTech Cem’s unitary EBITDA firmed up to its all

time high levels on solid realisation gains

UltraTech Cem’s EBITDA margin expanded further to

its highest levels in last 7-years!

Source: Company, HSIE Research Source: Company, HSIE Research

Peer Set Comparison

Company Mcap

(Rs bn)

CMP

(Rs/sh) Reco TP

EV/EBITDA EV/MT (Rs bn) Net D:E (x) RoE (%)

FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E

UltraTech Cem 1,018 3,529 BUY 4,720 12.6 14.1 11.5 10.28 9.84 9.22 0.4 0.3 0.2 10.4 7.6 9.5

Shree Cement 676 19,410 REDUCE 17,900 17.9 20.8 17.0 15.19 14.80 13.59 (0.3) (0.3) (0.3) 13.9 7.9 9.7

Ambuja Cements 357 180 BUY 210 9.0 10.1 8.5 6.53 6.17 6.16 (0.7) (0.7) (0.7) 6.8 5.3 6.0

ACC 220 1,171 BUY 1,440 7.2 9.9 8.1 5.45 5.61 5.66 (0.4) (0.4) (0.3) 11.6 8.4 10.6

Ramco Cements 132 562 BUY 670 13.6 14.1 10.4 8.28 7.94 7.18 0.4 0.4 0.3 12.1 10.2 12.7

Dalmia Bharat 93 485 BUY 930 6.6 8.4 6.5 5.06 4.34 3.67 0.4 0.4 0.4 2.0 (1.2) 0.5

JK Cement 84 1,093 BUY 1,355 9.8 10.1 9.2 6.69 6.76 7.17 0.9 0.9 1.0 14.9 11.8 13.9

Star Cement 29 70 BUY 100 7.0 7.5 6.5 4.82 5.12 5.45 (0.1) (0.0) 0.1 15.7 13.5 16.1

JK Lakshmi 24 200 BUY 370 5.3 6.6 5.5 2.93 3.06 2.70 0.6 0.7 0.6 13.8 9.3 11.4

Orient Cement 8.2 40 BUY 85 6.4 6.5 5.9 2.56 2.63 3.00 1.1 1.2 1.3 4.7 4.6 12.3

Deccan Cements 3.0 212 BUY 370 3.5 3.2 3.6 1.21 1.10 1.72 (0.1) (0.1) 0.2 9.9 7.9 11.8

Source: Company, HSIE Research, For ACC and Ambuja, the financial year is CY19/CY20E/CY21E resp

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Page | 6


Financials Consolidated Income Statement YE Mar (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E

Revenues 253,749 309,786 416,088 421,248 352,439 426,277

Growth % 0.9 22.1 34.3 1.2 (16.3) 21.0

Raw Material 44,169 52,888 69,831 63,131 51,234 64,137

Power & Fuel 42,720 63,341 94,361 84,679 63,762 79,435

Freight Expense 59,031 73,100 103,145 97,254 78,520 97,819

Employee cost 15,223 18,102 22,911 25,094 25,847 28,949

Other Expenses 40,482 40,904 52,371 56,922 51,230 58,914

EBITDA 52,124 61,452 73,469 94,168 81,846 97,023

EBIDTA Margin (%) 20.5 19.8 17.7 22.4 23.2 22.8

EBITDA Growth % 6.4 17.9 19.6 28.2 (13.1) 18.5

Depreciation 13,484 18,479 24,507 27,022 27,573 29,993

EBIT 38,640 42,972 48,962 67,146 54,272 67,030

Other Income (Including EO Items) 6,481 2,420 3,496 26,692 8,000 7,500

Interest 6,401 12,376 17,779 19,857 19,000 15,118

PBT 38,720 33,016 34,679 73,982 43,272 59,411

Tax 11,585 10,770 10,754 15,865 12,549 17,823

Minority Int - - - - - -

RPAT 27,135 22,246 23,925 58,117 30,723 41,588

EO (Loss) / Profit (Net Of Tax) - (3,466) (1,139) 20,214 - -

APAT 27,135 25,712 25,064 37,903 30,723 41,588

APAT Growth (%) 9.4 (5.2) (2.5) 51.2 (18.9) 35.4


Consolidated Balance Sheet

YE Mar (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E

SOURCES OF FUNDS

Share Capital 2,745 2,746 2,746 2,886 2,886 2,886

Reserves And Surplus 241,174 261,066 334,760 388,269 415,240 451,921

Total Equity 243,919 263,812 337,507 391,155 418,126 454,807

Minority Int 97 160 122 75 75 75

Long-term Debt 63,708 158,635 206,504 173,675 153,675 113,675

Short-term Debt 21,037 36,168 46,866 55,304 55,304 55,304

Total Debt 84,745 194,802 253,370 228,979 208,979 168,979

Deferred Tax Liability 27,726 31,827 64,114 49,120 49,120 49,120

Long-term Liab+ Provisions 3,355 1,917 1,796 13,039 13,691 14,375

TOTAL SOURCES OF FUNDS 359,842 492,518 656,908 682,368 689,991 687,357

APPLICATION OF FUNDS

Net Block 248,186 386,790 503,457 506,835 494,262 499,268

Capital WIP 9,215 15,112 11,533 9,196 16,196 1,196

Goodwill 10,851 10,363 62,989 62,989 62,989 62,989

Other Non-current Assets 7,787 29,649 43,804 47,428 49,799 50,604

Total Non-current Investments 246 108 187 232 232 232

Total Non-current Assets 276,286 442,022 621,970 626,680 623,478 614,290

Inventories 24,006 32,676 40,990 41,483 36,301 46,891

Debtors 17,571 22,206 27,870 22,383 24,671 34,102

Cash and Cash Equivalents 89,147 56,552 36,423 64,447 75,246 76,532

Other Current Assets (& Loans/adv) 15,082 18,049 38,121 38,379 41,587 42,116

Total Current Assets 145,806 129,483 143,404 166,692 177,806 199,641

Creditors 18,486 23,849 31,597 35,014 26,433 31,971

Other Current Liabilities & Provns 43,763 55,138 76,869 75,989 84,859 94,603

Total Current Liabilities 62,250 78,987 108,466 111,003 111,292 126,574

Net Current Assets 83,556 50,496 34,938 55,688 66,513 73,067

TOTAL APPLICATION OF FUNDS 359,842 492,518 656,908 682,368 689,991 687,357


Page | 7


Consolidated Cash Flow

YE Mar (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E

Reported PBT 38,721 33,015 34,685 52,423 43,272 59,411

Non-operating & EO Items (6,409) (4,010) (3,356) (5,869) (8,000) (7,500)

Interest Expenses 6,401 12,376 17,779 19,857 19,000 15,118

Depreciation 13,484 18,479 24,507 27,022 27,573 29,993

Working Capital Change 5,291 (12,554) (6,957) 4,503 (1,745) (5,389)

Tax Paid (7,437) (8,429) (7,101) (8,914) (12,549) (17,823)

OPERATING CASH FLOW ( a ) 50,050 38,877 59,557 89,020 67,551 73,811

Capex (13,636) (18,828) (16,482) (17,037) (22,000) (20,000)

Free Cash Flow (FCF) 36,414 20,050 43,075 71,983 45,551 53,811

Investments (11,636) 36,774 26,614 (26,266) - -

Non-operating Income 468 670 1,007 1,210 8,000 7,500

Others

INVESTING CASH FLOW ( b ) (24,803) 18,616 11,138 (42,094) (14,000) (12,500)

Debt Issuance/(Repaid) (16,153) (42,069) (46,482) (27,164) (20,000) (40,000)

Interest Expenses (6,144) (12,099) (16,850) (18,944) (19,000) (15,118)

FCFE 14,117 (34,118) (20,257) 25,875 6,551 (1,307)

Share Capital Issuance 66 157 (775) (3) - -

Dividend (3,119) (3,340) (3,462) (3,800) (3,752) (4,907)

FINANCING CASH FLOW ( c ) (25,350) (57,351) (67,568) (49,911) (42,752) (60,025)

NET CASH FLOW (a+b+c) (103) 142 3,127 (2,985) 10,799 1,286

EO Items, Others 38,721 33,015 34,685 52,423 43,272 59,411

Closing Cash & Equivalents (6,409) (4,010) (3,356) (5,869) (8,000) (7,500)

Key Ratios

FY17 FY18 FY19 FY20 FY21E FY22E

PROFITABILITY %

EBITDA Margin 20.5 19.8 17.7 22.4 23.2 22.8

EBIT Margin 15.2 13.9 11.8 15.9 15.4 15.7

APAT Margin 10.7 8.3 6.0 9.0 8.7 9.8

RoE 11.7 10.1 8.3 10.4 7.6 9.5

RoIC 9.4 8.2 6.4 8.5 6.3 7.7

RoCE 8.9 7.7 6.4 8.6 6.4 7.6

EFFICIENCY

Tax Rate % 29.9 32.6 31.0 21.4 29.0 30.0

Fixed Asset Turnover (x) 0.9 0.9 0.8 0.6 0.5 0.6

Inventory (days) 35 38 36 36 38 40

Debtors (days) 25 26 24 19 26 29

Other Current Assets (days) 22 21 33 33 43 36

Payables (days) 27 28 28 30 27 27

Other Current Liab & Provns (days) 63 65 67 66 88 81

Cash Conversion Cycle (days) (8) (7) (1) (8) (9) (3)

Net Debt/EBITDA (x) (0.1) 2.2 3.0 1.7 1.6 1.0

Net D/E (0.0) 0.5 0.6 0.4 0.3 0.2

Interest Coverage 6.0 3.5 2.8 3.4 2.9 4.4

PER SHARE DATA (Rs)

EPS 98.8 93.6 91.3 131.3 106.4 144.1

CEPS 148.0 160.9 180.5 224.9 202.0 248.0

Dividend 10.0 10.5 11.5 13.0 13.0 17.0

Book Value 888.9 961.3 1,229.3 1,355.5 1,448.9 1,576.0

VALUATION

P/E (x) 37.7 39.8 40.8 27.0 33.3 24.6

P/Cash EPS (x) 25.2 25.1 21.1 12.0 17.6 14.3

P/BV (x) 4.2 3.9 3.0 2.6 2.4 2.3

EV/EBITDA (x) 19.6 18.9 16.9 12.6 14.1 11.5

EV/MT (Rs bn) 14.23 13.08 10.96 10.28 9.84 9.23

Dividend Yield (%) 0.3 0.3 0.3 0.4 0.4 0.5

OCF/EV (%) 4.9 3.3 4.8 7.5 5.8 6.6

FCFF/EV (%) 3.6 1.7 3.5 6.1 3.9 4.8

FCFE/M Cap (%) 1.4 (3.3) (2.0) 2.5 0.6 (0.1)


Page | 8


Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: > 10% Downside return potential

Date CMP Reco Target

10-Jul-19 4,499 BUY 5,140

9-Aug-19 4,233 BUY 5,280

22-Sep-19 4,270 BUY 5,330

10-Oct-19 4,044 BUY 5,330

23-Oct-19 4,249 BUY 5,350

30-Dec-19 4,056 BUY 5,350

10-Jan-20 4,388 BUY 5,350

25-Jan-20 4,641 BUY 5,600

2-Mar-20 4,220 BUY 5,900

5-Mar-20 4,173 BUY 5,900

17-Apr-20 3,539 BUY 4,850

7-May-20 3,253 BUY 4,850

21-May-20 3,529 BUY 4,720

From 2nd March 2020, we have moved to new rating system

RECOMMENDATION HISTORY

2,800

3,300

3,800

4,300

4,800

5,300

5,800

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

-20

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Ultratech TP

Page | 9


Disclosure:

We, Rajesh Ravi, MBA & Saurabh Dugar, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research

report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this

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the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material

conflict of interest.

Any holding in stock –No

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