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Ultratech Ltd.

RESULT UPDATE 26th April 2017

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91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

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

KRChoksey Research is also available on Bloomberg KRCS<GO>

Thomson Reuters, Factset and Capital IQ

UltraTech Cement Ltd. Growth priced in; maintain HOLD CMP

INR 4238 Target

INR 4266 Potential Upside

1% Market Cap (INR Mn)

1137656.8 Recommendation

Hold Sector

Cement

Company Overview Ultratech Cement Ltd. (UTCEM), a flagship company of Aditya Birla Group, is the largest cement manufacturer in India with a cement capacity of 67 MTPA and a CPP of 780 MW(including WHRS of 63 MW) . The company has a PAN India presence and proposes to augment its capacity to 95.4 MTPA by end of FY19E. The company witnessed a subdued volume growth of ~5% over FY12-FY16 due to weak demand scenario. However, we expect the volumes to grow by ~20.6% over FY17-FY19E on account of acquisition of Jaiprakash Associates Ltd coupled with enhanced focus of Government on affordable housing and infrastructure development. We believe that Ultratech stands as the biggest beneficiary of demand revival on account of being the market leader with a market share of ~20%(post acquisition).

SHARE PRICE PERFORMANCE

Shares outs (Mn) 274.5

EquityCap (INR Mn) 2745.1

Mkt Cap (INR Mn) 1137656.8

52 Wk H/L (INR) 4206/3050

Volume Avg (3m K) 278.8

Face Value (INR) 10

Bloomberg Code UTCEM IN

MARKET DATA

SENSEX 29943

NIFTY 9307

MARKET INFO

Robust volume growth expected going ahead:

UTCEM’s grey cement volumes for Q4FY17 stood at 13.35 MT which was up 0.3% Y-O-Y against an expected de-growth of ~6%. The total volume sales for FY17 stood at 50.19 MT which was up 2% Y-O-Y. The company outperformed on the volume front despite demonetization and we expect a sharp recovery in the volumes from Q1FY18 onwards. The installed capacity for the company is set to increase to 95.4 MTPA by the end of FY19E as against the current capacity of 67 MTPA on account of acquisition of Jaiprakash Associates (~21.2 MTPA) and Greenfield expansion at Dhar in Southwest MP (~3.5 MTPA).

The company witnessed a subdued volume growth of ~5% over FY12-FY16 due to weak demand scenario. However, we expect the volumes to grow by ~20.6% over FY17-FY19E on account of acquisition of Jaiprakash Associates Ltd coupled with enhanced focus of Government on affordable housing and infrastructure development.

We expect the volumes to grow from 50.19 MT in FY17 to 73 MT by FY19E translating into 20.6% CAGR. Likewise, we estimate UTCEM’s revenues to surge from INR 271624.2 mn in FY17 to INR 424789.9 mn by FY19E growing at 25.06% over the same period.

Efficiencies to sustain despite hike in input costs: EBITDA for the quarter stood at INR 12782 mn which was down 7.2% Y-O-Y primarily due to hike in power and fuel costs and other expenses. EBITDA margins stood at 17% as against our estimate of 15.86% due to lower than expected P&F costs. The company managed to offset the negative impact of hike in pet-coke prices by improving captive power plant efficiency and enhancing the share of waste heat recovery systems. Despite consistent increase in pet-coke prices, we expect the efficiencies to sustain going ahead on account of investment in increasing the WHRS capacity (to increase by 9MW), operating leverage and stability in cement prices on the back of healthy demand. We expect the EBITDA for UTCEM to grow by ~27.4% from INR 49689.5 mn in FY17 to INR 80643.6 mn by FY19E and EBITDA/ton to rise from INR 935 in FY17 to INR 1104 by FY19E.

Return ratios to remain suppressed on account of expansion : UTCEM’s currently possesses net cash and cash equivalents of INR 17659.9 mn. However, post acquisition of assets of Jaiprakash Associates, we expect the debt to increase from INR 52471.2 mn in FY17 to INR 174471.2 mn by FY19E. Despite significant increase in debt, the net debt/equity for the company stands at 0.4 in FY19E which in our view is at comfortable levels. However, we expect the return ratios to remain suppressed with ROE increasing from 11.26% in FY17 to 12.60% by FY19E while ROCE decreasing marginally from 13.79% to 13.54% over the same period. Likewise, we expect the free cash flow generation to increase from INR 21591.4 mn in FY17 to INR 41800 mn by FY19E.

Particulars Mar 17 Dec 16 Sep 16

Promoters 62.16 62.26 62.26

FIIs 21.87 20.83 20.61

DIIs 5.5 6.27 6.06

Others 10.47 10.65 11.07

Total 100 100 100

SHARE HOLDING PATTERN (%)

Volume CAGR between FY 17 and FY 19E

20.6%

Revenue CAGR between FY 17 and FY 19E

25.1%

90

110

130

Ap

r-16

Jul-1

6

Oct

-16

Jan

-17

Ap

r-17

Sensex Ultratech

India Equity Institutional Research II Result Update - Q4FY17 II 26th April, 2017

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Valuation and Outlook: The company witnessed a subdued volume growth of ~5% over FY12-FY16 due to weak demand scenario. However, we expect the volumes to grow by ~20.6% over FY17-FY19E on account of acquisition of Jaiprakash Associates Ltd coupled with enhanced focus of Government on affordable housing and infrastructure development. With expected net debt of INR 112516.8 mn by FY19, the company trades at an EV/ton of $201 and EV/EBITDA of 15.79x on FY19 basis; which is at a premium compared to its large cap peers on account of significant market share(~20% post acquisition), superior brand, healthy balance sheet and high operating efficiencies. We value Ultratech Cement Ltd at an EV/EBITDA of 16x and EV/ton of $200 on FY19E and arrive at a target price of INR 4266. Maintain HOLD.

Particulars (in INR) FY15 FY16 FY17 FY18E FY19E

Realization/ton 4842.16 4760.59 4705.32 4893.53 5070.79

COGS cost/ton 760.86 794.94 801.85 823.99 818.57

Employee cost/ton 260.37 267.88 281.62 300.11 298.14

Power and fuel cost/ton 1013.65 846.81 782.34 803.94 813.16

Transportation and Handling cost/ton 1154.17 1185.08 1164.62 1179.34 1221.82

Other Expenses/ton 825.23 804.57 739.74 814.30 814.55

EBITDA/ton 827.86 861.31 935.15 971.85 1104.55

Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E

Revenues 259988.60 273402.10 271624.20 370290.23 424789.90

EBITDA 41532.70 45797.70 49689.50 64079.95 80643.62

PAT 19729.70 21383.00 26277.20 23525.90 35600.41

EPS 72.01 78.04 95.90 85.86 129.93

P/E (x) 40.03 41.44 44.19 49.36 32.62

EV/EBITDA (x) 20.14 20.09 23.01 20.26 15.79

Source: Company, KRChoksey Research


Key Financials

Operating metrics

UltraTech Cement Ltd.


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Management team:

Fund Name (as on Mar 2017) Market Value (INR Mn) No. of Shares

UTI Mutual Fund 4871.7 1222878

Kotak Mahindra Mutual Fund 4537.84 1138803

SBI Mutual Fund 4334.91 1087874

Franklin Templeton Mutual Fund 3735.84 937535

DSP BlackRock Mutual Fund 2124.74 535417



Share Holding Pattern:

Top 5 Fund Holdings:

Name Designation Executive / Non-Executive

Kumar Mangalam Birla Chairman Non-Executive

K K Maheshwari Managing Director Executive

Rajashree Birla Director Non-Executive

G M Dave Director Non-Executive

D D Rathi Director Non-Executive

S K Chatterjee Company Secretary NA

S B Mathur Director Non-Executive

O P Puranmalka Non Executive Director Non-Executive

Arun Adhikari Additional Director Non-Executive

Sukanya Kripalu Additional Director Non-Executive

Renuka Ramnath Additional Director Non-Executive

Alka Bharucha Independent Director NA

Atul Daga Whole Time Director & CFO NA


62%

22%

7%

10%

Promoters FIIs DIIs Others








Q4FY17 Result Snapshot Key takeaways from Conference Call:

•FY17 ended on a positive note for Ultratech with a marginal volume growth of ~1% for Q4FY17 and ~2% for FY17. The year was one

of the toughest for the cement industry on account of the liquidity crunch due to demonetization and hike in input costs.

Management estimates flattish growth for the entire industry in FY17.

•On the regional front, South continued to do better; however, the droughts in Tamil Nadu and Kerala and political instability in

Tamil Nadu has affected the demand in this quarter. The western market has started to pick up on account of institutional

demand; metro and coastal road projects in cities like Mumbai is expected to drive cement demand. Northern markets remained

sluggish on account of weak demand in housing segment especially in UP and Punjab while Eastern markets witnessed stagnant

demand.

•Management expects the acquisition of Jaiprakash Associates to be completed within the next few months and will try to

increase the capacity utilization of those assets in excess of 60% within the first 12 months of acquisition as compared to ~42%

currently.

•On the input costs, the average pet-coke prices for the quarter stood at ~$87 as against ~$42 in Q4FY16 and ~$78 in Q3FY17. The

current prices of pet-coke stand at $94; however it continues to be favorable on per cal basis.

•Going ahead, management believes that the uptick in demand has begun and expects the affordable housing scheme as one of

the key demand driver for the cement industry with approximately 352 projects launched across 53 cities. In the infrastructure

space, roads and irrigation continue to remain the key demand drivers.

Particulars (Mn) Q4FY17 Q3FY16 Q4FY16 Q-o-Q Y-o-Y

Total Sales 74994 63722 72839 17.7% 3.0%

Total Expenditure 62212 52587 59069 18.3% 5.3%

Cost of Raw Materials 11508 9236 11261 24.6% 2.2%

Employee Cost 3449 3647 3379 -5.4% 2.1%

Power and Fuel Costs 11543 9689 10165 19.1% 13.6%

Transportation costs 16645 13606 16369 22.3% 1.7%

Other expenses 10027 8779 9079 14.2% 10.4%

Excise duty paid on sales 9042 7631 8816 18.5% 2.6%

PBIDT (Excl OI) 12782 11135 13770 14.8% -7.2%

EBITDA Margins (%) 17.0% 17.5% 18.9% -43bps -186bps

Depreciation 3357 3156 3515 6.4% -4.5%

EBIT & Exceptional Item 9425 7978 10255 18.1% -8.1%

Exceptional Items 136.9 0 0 - -

Other Income 2401 970 1402 147.5% 71.3%

EBIT 11689 8949 11657 30.6% 0.3%

Interest 1529 1293 1126 18.3% 35.8%

EBT 10160 7655 10531 32.7% -3.5%

Tax 3276 2021 2723 62.1% 20.3%

PAT 6883 5634 7808 22.2% -11.8%

PAT Margin (%) 9.2% 8.8% 10.72% 34bps -154bps

EPS 25.12 20.56 28.50 22.2% -11.8%

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UltraTech Cement Ltd. Standalone Financials

Balance Sheet (INR Mn) FY15 FY16 FY17 FY18E FY19E

Equity Share Capital 2744.00 2744.30 2744.70 2744.70 2744.70

Reserves 185832.80 204616.60 227593.80 248296.59 279624.96

Net worth 188576.80 207360.90 233318.90 251153.29 282481.66

Total loans 74141.00 76607.00 52471.20 194471.20 174471.20

Capital Employed 283262 289821 316294 477190 488892

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 35724.42 40934.23

Sundry debtors 12031.90 14148.90 12761.70 18260.89 20948.54

Sundry creditors 27389.70 16135.70 17138.00 26793.31 31110.01

Cash and bank 2139.40 22352.00 16071.60 3452.17 7894.89

Total Current assets 79124.20 91910.00 118659.26 121090.82 133393.00

Total Current liabilities 87868.10 112090.30 80584.00 87443.81 90673.89

Capital Deployed 283262 289821 316294 477190 488892

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Profit & Loss (INR Mn) FY15 FY16 FY17 FY18E FY19E

Total Sales 259988.60 273402.1 271624.20 370290.23 424789.90

COGS 35600.80 39810.8 40245.10 54330.89 59763.97

Employee Expenses 12182.90 13415.2 14134.40 19788.16 21766.98

Power and fuel 47428.90 42408.1 39265.50 53008.43 59369.44

Transportation cost 54003.80 59349 58452.20 77760.95 89205.88

Other Expenses 38612.60 40292.8 37127.60 53692.08 59470.59

Excise duty 30626.90 32328.5 32709.90 47629.78 54569.43

EBITDA 41532.70 45797.7 49689.50 64079.95 80643.62

D&A 11331.10 12890.3 12678.70 19565.39 20370.39

Other income 3717.80 2351.6 6599.50 5184.06 5947.06

EBIT 33919.40 35259 43610.30 49698.62 66220.28

Interest Expense 5474.50 5052.9 5713.90 14585.34 13085.34

PBT 28444.90 30206.1 37896.40 35113.28 53134.94

Tax 8715.20 8823.1 11482.30 11587.38 17534.53

Effective tax rate 30.64% 29.21% 30.30% 33.00% 33.00%

PAT 19729.70 21383 26277.20 23525.90 35600.41

Cash Flow (INR Mn) FY15 FY16 FY17 FY18E FY19E

PAT 19729.70 21383.00 26277.20 23525.90 35600.41

Depreciation & Amortization 11331.10 12890.30 12678.70 19565.39 20370.39

(Incr)/Decr in Working Capital 90.70 5,195.30 -8,917.80 -9,997.61 -4,256.03

Cash Flow from Operating 40,829.30 43,306.10 35,888.90 47,679.02 64,800.11

(Incr)/ Decr in Gross PP&E -25,799.30 -20,533.80 -14,297.50 -1,84,890.00 -23,000.00

Cash Flow from Investing -18,797.40 -17,323.30 -37,303.00 -1,84,890.00 -23,000.00

(Decr)/Incr in Debt 10,082.50 7,069.10 4,172.10 1,42,000.00 -20,000.00

Dividend -2,460.00 -2,461.80 -3,300.00 -2,823.11 -4,272.05

Finance costs -5,494.80 -5,388.00 -5,713.90 -14,585.34 -13,085.34

Cash Flow from Financing -22,667.50 -5,822.20 -4,841.80 1,24,591.55 -37,357.39

Incr/(Decr) in Balance Sheet Cash -635.60 20,160.60 -6,255.90 -12,619.43 4,442.72

Cash at the Start of the Year 2,775.00 2,166.90 22,327.50 16,071.60 3,452.17

Cash at the End of the Year 2,139.40 22,327.50 16,071.60 3,452.17 7,894.89










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Ratio Analysis FY15 FY16 FY17 FY18E FY19E

EBITDA/ton 827.86 861.31 935.15 971.85 1104.55

Volume (mn tons) 46.79 50.08 50.19 65.94 73.01

Growth (%)

Total Sales 13.03% 5.16% -0.65% 36.32% 14.72%

EBITDA 9.81% 10.27% 8.50% 28.96% 25.85%

PAT 6.45% 8.38% 22.89% -10.47% 51.32%

Profitability (%)

EBITDA Margin 15.97% 16.75% 18.29% 17.31% 18.98%

NPM 7.59% 7.82% 9.67% 6.35% 8.38%

Return ratios

ROE 8.61% 10.31% 11.26% 9.37% 12.60%

ROCE 10.74% 12.17% 13.79% 10.41% 13.54%

Per share data

EPS 72.01 78.04 95.90 85.86 129.93

BPS 688.24 756.79 851.53 916.62 1,030.95

Valuations (x)

P/E (x) 40.03 41.44 44.19 49.36 32.62

P/BV (x) 4.19 4.27 4.98 4.62 4.11

EV/EBITDA (x) 20.14 20.09 23.01 20.26 15.79

EV/Ton ($) 202.58 198.64 246.47 210.72 200.22

Net Debt/EBITDA 1.13 0.74 -0.36 2.14 1.40

Net Debt/Equity 0.25 0.16 -0.08 0.55 0.40

Interest Coverage 6.20 6.98 7.63 3.41 5.06







Analyst Certification

We, Vaibhav Chowdhry (B.Com, MBA), research analyst, & Kunal Shah (BE), 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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