UltraTech Cement Ltd – Fundamental Pick
UltraTech Cement Ltd – Fundamental 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.
- 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
|Installed capacity (MTPA)||64.65||60.15||7|
|White Cement & Wall|
|Total Sales Volume||47.97||44.85||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.
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.
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.
|Net Turn over||23,841||22,648||5|
|Profit Before Interest||4,851||4,567||6|
|Depreciation and Tax|
|PBIDT Margin %||20||20||–|
|Profit Before Interestand||3,562||3,434||4|
|Profit Before Tax Expenses||3,057||2,887||6|
|Net Profit after Tax||2,175||2,015||8|
|(Rs. in crores)|
|Profit Before Interest Depreciation & Tax (PBIDT)||5,109||4,776|
|Gross Profit (PBIDT)||4,549||4,189|
|Profit Before Tax (PBT)||3,181||2,986|
|Tax Profit Before Minority Interest||2,289||2,102|
|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
- Northern 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:
|SOURCE OF FUNDS:|
|Reserves & Surplus||20783.94||18766.78||16907.66||14955.41|
|Deferred Tax Liability||3231.74||2795.51||2299.65||1909.55|
|APPLICATION OF FUNDS:|
|Current Assets, Loans & Advances||7946.96||6137.37||5761.4||5155.83|
|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|
|Net Current Assets||-1104.41||-2318.98||221.13||-683.92|
|Deferred Tax Assets||10.2||9.64||9.29||8.38|
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.
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
Elite Wealth Advisors Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Advisors Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as read more