UltraTech Cement Limited is engaged in the business of cement and cement-related products. The Company manufactures a range of products that cater to construction needs from foundation to finish, including Ordinary Portland Cement (OPC), Portland Blast Furnace Slag Cement (PSC), Portland Pozzolana Cement (PPC), white cement and white cement-based products, ready mix concrete, including specialty concrete, building products, such as aerated autoclaved concrete (AAC) blocks and joining mortars and a host of others in retail formats. Its geographical segments include India and Rest of the World.

 

Key Highlights:

  • Ultratech Cement Limited is the 4TH largest cement player globally (excluding the Chinese player) and the largest player in India by an even large margin.
  • Net profit of UltraTech Cement rose 14.98% to Rs 896.99 crore in the quarter ended June 2017 as against Rs 780.11 crore during the previous quarter ended June 2017.
  • During FY17, the company’s cement capacity was augmented to 66.25 MTPA, following the commissioning of the grinding unit at Patliputra in Bihar.Company’s cement production for FY17 improved marginally from 47.56 million tonnes in the previous year to 47.91 milion tonnes.Capacity utilization clocked 72% on a higher capacity base.
  • The acquisition of Jaiprakash Associates Limited (JAL) and the Jaypee Cement Corporation Limited(JCCL) expanded the geographic footprint of the company enabling the company’s entry into high growth markets of India where greater reinforcement was needed.
  • The company’s Board of Directors approved the setting up of an integrated plant at Dhar, Madhya Pradesh with a capacity of 3.5MTPA and at an investment of Rs 2600 crores. Commercial production is expected to commence by Q4FY19.It will cater to the markets of south west Madhya Pradesh. This will further enhane the company’s presence in Central India.

BUSINESS  PERFORMANCE:

Production And Capacity Utilisation (grey cement)

Cement production for the year improved marginally from 47.56 million tonnes in the previous year to 47.91 million tonnes.

 

FY17 FY16 % change
Grey Cement
Installed capacity (MTPA) 66.25 64.65 2
Production (MMT) 47.91 47.56 1
Capacity Utilisation 72% 76% (4)

During the year, cement capacity was augmented to 66.25 MTPA, following the commissioning of the grinding unit at Patliputra in Bihar. Capacity utilisation clocked 72% on a higher capacity base.

Sales Volume: 

Particulars FY17 FY16 % change
Domestic Sales 47.62 47.13 1
Exports & Others 2.56 2.15 19
Total Sales Volume 50.19 49.28 2

Domestic sales volume rose marginally from 47.13 MMT to 47.62 MMT vis-a-vis a marginal dip in industry volume for the year. Exports of the company grew by 19% in FY17.

FINANCIAL PERFORMANCE:

Particulars Standalone Consolidated
2016-17 2015-16 2016-17 2015-16
Net Turnover 23,616 23,440 25,092 24,880
Domestic 23,191 23,137 23,191 23,137
Exports 425 303 1,901 1,743
Other Income 936 749 931 737
Total Expenditure 18,922 19,082 20,163 20,252
Profit before Interest, Depreciation and Tax (PBIDT) 5,629 5,107 5,861 5,365
Less: Depreciation 1,268 1,297 1,349 1,377
Profit before Interest and Tax (PBIT) 4,361 3,810 4,512 3,988
Interest 571 512 640 566
Profit before Impairment and Tax Expenses / share in profit of Associates 3,790 3,299 3,872 3,422
Provision for diminution in value of Investment -14
Profit before Tax Expenses 3,776 3,299 3,872 3,422
Tax Expenses 1,148 928 1,158 942
Profit after tax 2,628 2,370 2,714 2,480

Net Turnover:

 Net turnover of the company is higher than the previous year. Operating Profit for the year is up by 10%. Other income is also up by 25%.

The Company’s net turnover at Rs 23,616 crores is marginally higher over the previous year mainly on account of higher sales volume. Cement prices were down from Rs 4,757/t to Rs 4,706/t due to surplus capacity in the sector.

Other Income:

Other income of the company is up by 25% compared to the previous year. The Company has reversed a provision of Rs 138 crores related to the earlier years. Besides this, other income was augmented, given higher income on increase in surplus funds, deployed in secured debt instruments.

Operating Profit (PBIDT) and Margin:

Operating Profit for the year is at Rs 5,629 crores up by 10%. PBIDT margin rose from 22% to 24%.

Profit after Tax: 

Company’s PAT increases to Rs 2628 crores, up more than 10% from previous year.

Quarterly Performance

Particulars 201606 201706
      Gross Sales 7452.35 7928.5
      Excise Duty 865.7 893.83
      Net Sales 6586.65 7034.67
      Other Income 151.01 166.01
      Total Income 6737.66 7200.68
      Total Expenditure 5111.28 5433.93
      PBIDT 1626.38 1766.75
      Interest 179.82 140.85
      PBDT 1446.56 1625.9
      Depreciation 322.76 329.72
      PBT 1123.8 1296.18
      Tax 240.9 284.18
      Deferred Tax 103.07 114.09
      Reported Profit After Tax 779.83 897.91
      Minority Interest After NP -0.28 0.92
      Net Profit after Minority Interest 780.11 896.99

Net Profit of Q 1 rises by 15%

The Company reported 15% gain in consolidated net profit to Rs 896.99 crore on 6% growth in top line to Rs 7928.50 crore for the first quarter ended June 2017 thanks to better realisation and higher volume. The OPM expanded by 80 bps to 20.6% due to lower freight and forwarding expenses and other expenses. Thus, OP grew 11% to Rs 1632.21 crore. The combined domestic cement and clinker sales volume decreased marginally 0.1% to 13.19 million tonnes (mt), while realization grew 6.9% to Rs 5333 per tone.

Other income rose 10% to Rs 166 crore. Interest cost declined 22% to Rs 140.85 crore. Depreciation cost jumped 2% to Rs 329.72 crore. Thus, PBT before EO inclined 18% to Rs 1327.64 crore.

EO expenditure for the quarter was Rs 31.47 crore in respect to impairment in value of investment. Thus, PBT after EO was up by 15% to Rs 1296.17 crore.

The tax outgo increased 16% to Rs 398.27 crore. The effective tax rate escalated by 10 bps to 30.7%.Thus, the PAT before MI and Share in Profit of Associates rose 15% to Rs 897.90 crore. After accounting Share in Profit of Associates of Rs 0.01 crore and Minority interest outflow of Rs 0.92 crore, Net Profit jumped 15% to Rs 896.99 crore.

 

  • The Company white cement sales were about Rs. 370 crore and RMC were at about Rs. 475 crore in Q1FY18.
  • The Company fuel prices continued to rise in Q1FY18. Pet coke costs were high, and diesel costs were equally strong, resulting in costs going up. The Company energy cost was up 28% to Rs 871/tonne. However, continued efforts on efficiency improvement program which have helped reduce the impact of higher fuel prices to some extent.
 The company capacity utilization stood at 78% as against industry average of 70% during Q1FY18
  • Pet Coke price weakened in Q1FY18, with average price hovering ~US$84-85/tonne. Current procurement price is US$87-90/tonne after reaching a peak of US$95/tonne, led by high demand from China. Pet Coke usage in the fuel mix stood at 71% and the company projects this to be 80% going forward.
  • Utilization rate in the East was the highest at 90% followed by West/North at 80%, and Central region at 70%. Capacity utilization in the South region was the lowest at 60%.
  • Cement demand was higher in East and North regions on the back of Affordable Housing and Infrastructure Development. West region witnessed pick-up in demand, led by Metro Rail, affordable Housing segments, and lots of highway projects. The Company expects the coastal road project would kick off post monsoon which will see very high growth in Western markets.

 

Capital Expenditure Plans

 Company completed the acquisition of cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL) on 29th June 2017 with a capacity of 21.2 million tonns

During the FY2017,the Company commissioned cement grinding units at Nagpur, Maharashtra and at Patliputra, Bihar. To cater to the markets of south-west Madhya Pradesh, the Board of Directors have approved the setting up of an integrated cement plant at Dhar, Madhya Pradesh with a capacity of 3.5 MTPA and at a total cost of Rs 2,600 crores. The commercial production from the plant is expected to commence by Q4FY19.

The capital expenditure during financial year 2018 is expected to be approximately ‘ 2,200 crores, mainly for capacity expansion projects, regulatory requirements, plant infrastructure and routine maintenance.

Corporate Developments

These greenfield expansions and the acquisition of the cement plants of

JAL and JCCL, shall propel the Company’s cement capacity to 96.5

Mtpa, by including its overseas operations in the UAE.

The company has finalized the acquisition of Jaiprakash Associates assets in Q1FY18, With the acquisition of cement plants in Madhya Pradesh, Uttar Pradesh, Himachal Pradesh, Uttarakhand and Andhra Pradesh, the overall capacity of the company increased by 21.2 MT to 93 MTPA. The Company plans to improve the operational efficiency and the utilisation level of the acquired assets (currently operating at utilization of less than 15%) to 60% over the next one year and 70% by FY19. Further, the company expects to achieve cash breakeven for the acquired assets in the next 12 months.

This acquisition expands the geographic footprint of the company. It enables the company’s entry into the high growth markets of India where greater reinforcement was needed. The operations will be strengthened by process and technological upgradations, leading to enhancement of capacity utilization. Creating synergies inmanufacturing, distribution and logistics offer many advantages.Furthermore, economies of scale and reduced lead-time to markets, willbe achieved. These will enhance competitiveness and benefit consumers.

After the acquisition, the Company has 18 Integrated Plants, 1 clinkerisation unit, 25Grinding    Units and 7 bulk terminals, augmenting its Grey Cement manufacturing capacity to 93 mtpa.

 

Consolidated Assets and Liabilities:

  201703 201603 201503 201403 201303
      SOURCES  OF  FUNDS :
      Share Capital 274.51 274.43 274.4 274.24 274.18
      Reserves Total 24117.11 21671.2 18766.78 16907.66 14955.41
      Minority Interest 9.71 15.45 18.19 16.64 78.12
      Total Debt 8474.49 10615.99 9829.14 7331.86 7342.27
      Other Liabilities 334.91 286.32 195.23 150.19 136.4
      Total Liabilities 33210.73 32863.39 29083.74 24680.59 22786.38
      APPLICATION OF FUNDS :
      Gross Block 28498.63 26611.22 34909.58 27854.14 23730.46
      Less: Accumulated Depreciation 2594.34 1301.8 11566.73 9754.44 8680.72
      Net Block 25904.29 25309.42 23342.85 18099.7 15049.74
      Capital Work in Progress 921.48 1469.09 2250.01 2185.86 3601.17
      Investments 6690.51 5095.18 4500.02 4861.85 4708.54
      Current Assets, Loans & Advances
      Inventories 2400.64 2454.58 2949.12 2580.35 2540.67
      Sundry Debtors 1757.09 1928.21 1658.82 1632.06 1376.29
      Cash and Bank 2248.79 2266.96 370.6 348.49 184.79
      Loans and Advances 1507.08 1519.05 1158.83 1200.5 1054.19
      Total Current Assets 7913.6 8168.8 6137.37 5761.4 5155.94
      Less : Current Liabilities and Provisions
      Current Liabilities 5494.51 5257.02 5034.06 4370.19 3944.64
      Provisions 731.04 641.82 1149.74 843.54 949.36
      Total Current Liabilities 6225.55 5898.84 6183.8 5213.73 4894
      Net Current Assets 1688.05 2269.96 -46.43 547.67 261.94
      Deferred Tax Assets 1186.96 1254.97 383.22 207.84 193.43
      Deferred Tax Liability 3959.54 3685.85 3169.09 2498.2 2094.6
      Net Deferred Tax -2772.58 -2430.88 -2785.87 -2290.36 -1901.17
      Other Assets 778.98 1150.62 1823.16 1275.87 1066.16
      Total Assets 33210.73 32863.39 29083.74 24680.59 22786.38

Outlook: 

UltraTech Cement Limited is engaged in the business of cement and cement-related products. Cement industry ended last year on a positive note and also entered the current financial year with good volumes; however, midway way lost the momentum for multiple reasons including GST, monsoons, sand shortage, drought in some regions, political instability and so on. Eastern markets have been doing very well, followed by South, North and West, in that order. At an aggregate level, the Company expects the industry to grow around 2-3% this quarter. There could be a low base effect or benefit of new capacity for some players or gross under-utilization of some capacities that dampen the overall growth for the sector in this quarter.

Cement demand was higher in East and North regions on the back of Affordable Housing and Infrastructure Development. West region witnessed pick-up in demand, led by Metro Rail, affordable Housing segments, and lots of highway projects. The Company expect the coastal road project would kick off post monsoon which will see very high growth in Western markets.

The Company passed reduction in tax has been passed on to the customers, which is about 2% to 3%, varying from state to state. This does not impact the future earnings in any manner. The Company expects benefits of GST will be realized in the next few quarters as distances become shorter, smoother movement of trucks across state boundaries (nearly 70% of dispatcher by road), increase in direct movement instead of warehousing; reduction in costs and working capital.

The company has completed the acquisition of Jaiprakash Associates’ assets in Q1FY18, thus further strengthening its leadership position in the cement industry. With the acquisition of cement plants in Madhya Pradesh, Uttar Pradesh, Himachal Pradesh, Uttarakhand and Andhra Pradesh, the overall capacity of the company increased by 21.2 MT to 93 MTPA. The Company plans to improve the operational efficiency and the utilisation level of the acquired assets (currently operating at utilization of less than 15%) to 60% over the next one year and 70% by FY19. Further, the company expects to achieve cash breakeven for the acquired assets in the next 12 months.

The Company capacity utilization stood at 78% during Q1FY18 against industry average of 70%. Utilization rate in the East was the highest at 90% followed by West/North at 80%, and Central region at 70%. Capacity utilization in the South region was the lowest at 60%.

The government spending on infrastructure, rural, and affordable housing will be the key demand drivers for the company. The Company’s is well positioned across the country to cater to the demand. Considering the above factors we expect Ultratech to report EPS of Rs 117.34 FY18E, at CMP PE works out to be 34.13x FY18E. Hence stock can be bought at CMP to arrive at a target of Rs 4750. Time frame should be 9-12 months.


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