UltraTech Cement Limited Fundamental Stock Report
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.
- 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.
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.|
|Installed capacity (MTPA)||66.25||64.65||2|
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.
|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.
|Profit before Interest, Depreciation and Tax (PBIDT)||5,629||5,107||5,861||5,365|
|Profit before Interest and Tax (PBIT)||4,361||3,810||4,512||3,988|
|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|
|Profit after tax||2,628||2,370||2,714||2,480|
|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 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.
|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.
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:
|SOURCES OF FUNDS :|
|APPLICATION OF FUNDS :|
|Less: Accumulated Depreciation||2594.34||1301.8||11566.73||9754.44||8680.72|
|Capital Work in Progress||921.48||1469.09||2250.01||2185.86||3601.17|
|Current Assets, Loans & Advances|
|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|
|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|
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.
DISCLOSURE IN PURSUANCE OF SECTION 19 OF SEBI (RA) REGULATION 2014
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