UltraTech Cement Ltd – Fundamental Report

stock Details ultratech cementUltraTech 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 patternKey Highlights:

  • Net profit of UltraTech Cement rose 25.27% to Rs 614.30 crore in the quarter ended September 2016 as against Rs 490.39 crore during the previous quarter ended September 2015.
  • Operating margin (OPM) of the company grew by 300 bps to 18.7%. As a percentage to sales and net of stock adjustments, raw material cost shed 60 bps to 13.5%, freight & forwarding cost fell 50 bps to 19.5% and power & fuel expense declined 240 bps to 14.6%. However, other expenses gained 10 bps to 15% and employee benefits cost gained 40 bps to 5.8% during the period. As a result, the operating profit rose 16% to Rs 1218.66 crore.
  • The Indian Governments’ thrusts on developing infrastructure spending, good monsoons, development of smart cities leading to growth in housing demand in Tier-1 and Tier-2 cities, slower pace of new capacity addition augur well for the cement industry. UltraTech Cement is well positioned across the country to meet the expected rise in demand and participate in the next phase of growth in the country.
  • Going forward, consumption is expected to rise following the Government’s impetus on infrastructure development and allied sectors and implementation of the 7th Pay Commission recommendations, among others.
  • In FY16, Company’s cement capacity was augmented to 64.65 MTPA following greenfield capacity addition of 4.5 MTPA and commissioning of cement grinding plants at Jhajjar in Haryana and Dankuni in West Bengal. Company’s cement production increased by 8% from 43.88 MMT in the previous year to 47.56 MMT. Capacity utilization was an improved 76% on a higher capacity base. White cement and wall care putty output grew 10%.

UltraTech Cement’s capacity was augmented to 64.65 MTPA following greenfield capacity addition of 4.5 MTPA and commissioning of cement grinding plants at Jhajjar in Haryana and Dankuni in West Bengal. Company’s cement production increased by 8% from 43.88 MMT in the previous year to 47.56 MMT. Capacity utilisation was an improved 76% on a higher capacity base. White cement and wall care putty output grew 10%.

Production and Capacity Utilization

FY16 FY15 %change
Grey Cement
Installed capacity (MTPA) 64.65 60.15 7
Production (MMT) 47.56 43.88 8
Capacity Utilization 76% 75% 1
White Cement & Wall
Care Putty
Installed capacity(LMT) 14.8 14.8
Production(LMT) 13.21 12.04 10

Sales Volume

FY16 FY15 % change
Sales Volume(MMT)
Domestic-
Cement(Grey) 46.93 43.38 8
Clinker 0.2 0.57 (65)
Total 47.13 43.95 7
Exports-
Cement(Grey) 0.8 0.75 7
Clinker 0.04 0.15 (73)
Total 0.84 0.9 (7)
Total Sales Volume 47.97 44.85 7
White Cement&Wall 13.12 12.25 7
Care Putty (LMT)

Company’s domestic sales volume increased 8% to 46.93 MMT, which was higher than the estimated industry demand growth of 4.6%. Cement exports were also higher by about 7%. Sales volume for white cement and wall care putty registered 7% growth, largely supported by wall care putty performance.

Net Turnover

Company’s net turnover was Rs. 23,841 crores, an increase of 5% over the previous year mainly on account of a 7% increase in sales volume. Selling prices remained under pressure and overall realization declined 2% from Rs. 4,915/t in the previous year to Rs. 4,838/t.

Other Income

Sales valueOther income was 23% lower compared to the previous year.

This decline was on account of lower treasury income during the year as surplus funds were invested in long-term mutual fund schemes due for maturity from the next financial year.

Operating Profit (PBIDT) and Margin

PBIDT for the year at Rs. 4,851 crores was 6% higher than the previous year. Operating margin remained range-bound.

Financial Highlights

(Rs.in crores)
FY16 FY15 %change
Net Turn over 23,841 22,648 5
Domestic 23,538 22,347 5
Exports 303 301 1
Other Income 501 651 (23)
Total Expenditure 19,491 18,732 (4)
Profit Before Interest 4,851 4,567 6
Depreciation and Tax
(PBIDT)
PBIDT Margin % 20 20
Depreciation 1,289 1,133 (14)
Profit Before Interestand 3,562 3,434 4
Tax (PBIT)
Interest 505 547 8
Profit Before Tax Expenses 3,057 2,887 6
(PBT)
Tax Expenses 882 872 (1)
Net Profit after Tax 2,175 2,015 8

CONSOLIDATED PERFORMANCE

(Rs. in crores)
FY16 FY15
Net Turnover 25,281 24,056
Profit Before Interest Depreciation & Tax (PBIDT) 5,109 4,776
Interest 560 587
Gross Profit (PBIDT) 4,549 4,189
Depreciation 1,368 1,203
Profit Before Tax (PBT) 3,181 2,986
Tax Expenses 892 884
Tax Profit Before Minority Interest 2,289 2,102
Minority  Interest 2 4
Net profit after Minority Interest 2,287 2,098

The cement industry demand impacted in Q2FY17 due to widespread monsoons. The sector capacity utilization is at its lowest level. Cement prices firmed up over sequential previous quarter but lower than corresponding previous quarter. The industry faced a rising operating cost because petcoke prices moved up more than twice in last six months.

Regional demand update

  • operating profitNorthern region: The Northern cement industry holds ~142 mtpa of total 411 mtpa industry capacity share. The cement demand from northern region was impacted due to consistent rains and sand shortage. However, positive rural demand witnessed in some state during the quarter.
  • Eastern region: The Eastern cement industry holds ~68 mtpa of total 411 mtpa industry capacity share. The cement demand declined in eastern region with Bihar and Jharkhand was impacted by flood and various festival which impacted construction activities and cement demand, meanwhile cement demand in West Bengal was impacted due to sand issues. cement demand in Orissa was driven by government.
  • Western region: The Western cement industry holds ~54 mtpa of total 411 mtpa industry capacity share. The cement demand in Western region was subdued due to heavy rains and festive season during July and August, but some improvement witnessed in September.
  • Southern region: The southern cement industry holds ~147 mtpa of total 411 mtpa industry capacity share. The cement demand improvement was witnesses in AP and Telangana and expects meaningful demand to come road ahead.

Sales performance- The combined domestic cement and clinker sales declined 1% to 10.55 million tonne (mt) in Q2FY17 due to good monsoon. Capacity utilization declined to 64% from 72% corresponding previous quarter.

  • Financial performance: UltraTech Cement, an Aditya Birla Group Company, has posted 25% growth in consolidated net profit to Rs 614.30 crore for the quarter ended September 2016 on the back of lower expenses. However, the consolidated total income from operations declined 2% to Rs 6508.62 crore because off take gets hit owing to rains. The OPM improved by 300 bps to 18.7% on the back of operational efficiencies and a judicious power and fuel mix. Thus, OP ascended by 16% to Rs 1218.66 crore.
  • Logistics cost, accounts 33% of total cost, was down 4% to Rs 1041 per tonne in Q2 FY2017, because improvement in lead distance and optimization of plant and market mix. Of the total logistic cost- 73% came from road transport, 23% from rail transport, and 3% sea transport.
  • Energy cost, accounts 23% of total cost, reduced 19% to Rs 737 per tonne, on account of increased usage of pet-coke and WHRS. Pet-coke consumption increased –Rs 40/t, Improved power consumption (3%) – Rs 15/t, and increase WHRS share in total power 7% – Rs 15/t. Of the total energy cost- 76% consists from petcoke, 15% from imported coke, and 9% from Indian coal and others. The Company expects Energy costs to increase going forward due to rise in pet coke and coal prices.
  • Saving in power costs came as WHRS contributed 7% of power requirements in Q2FY17 as compared to 4% in Q2FY16. Power cost reduction through increasing share of WHRS power because average power rate down 2.5% despite increase in TPP cost. WHRS power cost 1/6th of TPP cost.
  • Raw materials cost, account 14% of total cost, was range bound at Rs 462 per tonne, as raw mix optimization.
  • The company expects Governments’ thrusts on developing infrastructure spending, good monsoons, development of smart cities leading to growth in housing demand in Tier-1 and Tier-2 cities, slower pace of new capacity addition augur well for the cement industry. UltraTech Cement is well positioned across the country to meet the expected rise in demand and participate in the next phase of growth in the country. India’s cement demand remained passive for most of FY16, particularly on account of low demand from the housing segment. However, there were signs of demand recovery in the last quarter, reflected in double-digit growth riding on higher infrastructure spending and development in Andhra Pradesh and Telangana. As the economy revives, the country’s cement industry is expected to perform better.

Consolidated Assets & Liabilities:

Fig.inCr 201603 201503 201403 201303
SOURCE OF FUNDS:
Share Capital 274.43 274.4 274.24 274.18
Reserves & Surplus 20783.94 18766.78 16907.66 14955.41
Minority Interest 15.45 18.19 16.64 78.12
Loan Fund 7195.63 7556.59 7005.32 6396.41
Deferred Tax Liability 3231.74 2795.51 2299.65 1909.55
Other Liabilities 214.36 195.23 150.19 136.4
Total Liabilities 31715.55 29606.7 26653.7 23750.07
APPLICATION OF FUNDS:
Fixed Assets 25516.11 24539.75 19319.03 17917.25
Intangible Assets 1106.24 1053.11 966.53 733.66
Investments 4397.61 4500.02 4861.85 4708.54
Current Assets, Loans & Advances 7946.96 6137.37 5761.4 5155.83
Inventories 2615.41 2949.12 2580.35 2540.67
Sundry Debtors 1926.58 1658.82 1632.06 1376.29
Cash & Bank Balance 2272.06 370.6 348.49 184.79
Other Current Assets 29.98 17.93 19.62 6.01
Loans & Advances 1102.93 1140.9 1180.88 1048.07
Current Liabilities & Provisions 9051.37 8456.35 5540.27 5839.75
Current Liabilities 8095.77 7306.61 4696.73 4890.39
Provisions 955.6 1149.74 843.54 949.36
Net Current Assets -1104.41 -2318.98 221.13 -683.92
Deferred Tax Assets 10.2 9.64 9.29 8.38
Other Assets 1789.8 1823.16 1275.87 1066.16
Total Assets 31715.55 29606.7 26653.7 23750.07

 

Book value per share (Rs.)       NET DEBT _ EQUITY RATIO NET DEBT - EBIDTA(%)

The company have reported 14% growth in book value over a period of 5 years.

The Company’s gearing  Moderated from a peak of 1.58 in 2005 to 0.17 in FY16, inspite of several expansion/ acquisition projects undertaken during the period. The Company’s debt servicing abilities grew from a peak of 4.06 in 2005 to 0.71 in 2016 indicating growing ability to service debt.

Outlook:

UltraTech Cement Ltd. is the largest manufacturer of grey cement, Ready Mix Concrete (RMC) and white cement in India. It is also one of the leading cement producers globally. The company has an installed capacity of 69.3 Million Tonnes Per Annum (MTPA) of grey cement. UltraTech Cement has 12 integrated plants, 1 clinkerisation plant, 19 grinding units and 7 bulk terminals. Its operations span across India, UAE, Bahrain, Bangladesh and Sri Lanka. UltraTech Cement is also India’s largest exporter of cement reaching out to meet the demand in countries around the Indian Ocean and the Middle East.

India’s cement demand is expected to reach 550-600 Million Tonnes Per Annum (MTPA) by 2025. The housing sector is the biggest demand driver of cement, accounting for about 67 per cent of the total consumption in India. The other major consumers of cement include infrastructure at 13 per cent, commercial construction at 11 per cent and industrial construction at 9 per cent. To meet the rise in demand, cement companies are expected to add 56 MT capacity over the next three years. The cement capacity in India may register a growth of eight per cent by next year end to 395 MT from the current level of 366 MT. It may increase further to 421 MT by the end of 2017.

Ultratech Cement definitive agreements have been signed for the acquisition of cement plants of Jaiprakash Associates Limited in Madhya Pradesh, Uttar Pradesh, Himachal Pradesh, Uttarakhand and Andhra Pradesh. These plants have a capacity of 21.2 mtpa. This acquisition will be fructified through a court sanctioned scheme within a time frame of 12 months. After this is in place, Company’s cement capacity shall rise up to 87.5 mtpa in India. Together with its overseas operations and on-going expansion, UltraTech’s capacity will move on to an impressive 91.1 mtpa. With 100+ Ready Mix Concrete (RMC) plants in 35 cities, UltraTech is the largest manufacturer of concrete in India. It also has a slew of speciality concretes that meet specific needs of discerning customers.

The Company expects Governments’ thrusts on developing infrastructure spending, good monsoons, development of smart cities leading to growth in housing demand in Tier-1 and Tier-2 cities, slower pace of new capacity addition augur well for the cement industry. UltraTech Cement is well positioned across the country to meet the expected rise in demand and participate in the next phase of growth in the country. On the performance front, company has recorded EPS of Rs 83.3 FY16. And going forward we expect company to deliver Rs 98-100.54, on these earnings the company is available at a PEx of 32.9x FY17E. Hence the scrip can be accumulate between Rs 3315-3280 for the target of Rs 4000 for a time frame of 9-12 months.


Disclosure in pursuance of Section 19 of SEBI (RA) Regulation 2014

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