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21 May 2020 Results Review 4QFY20
UltraTech Cement
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Robust margin and leverage performance
We maintain BUY rating on UltraTech Cement with a TP of Rs 4,720 (15x FY22
consol EBITDA). In FY20, UltraTech’s profits surged, and it also reduced its
working capital and debt on books. In FY21E, we expect falling energy costs to
moderate the impact of an expected sharp 16% vol decline. However, we build
in 21% vol recovery in FY22E (owing to its robust distribution) as demand
normalises to drive earnings rebound in FY22E. In Q4FY20, amid sharp 16%
vol fall (covid impact), falling energy costs and increased fixed cost controls
boosted op margin to Rs 1,139/MT (+14% YoY).
Healthy profits despite weak volumes: Subdued growth in Jan/Feb-20 and
10-days sales loss in Mar-20 pulled down consol grey cem vol by 16% YoY to
24.3mn MT. White/putty vols fell 22% YoY to 0.32mn MT. Blended NSR rose
1% QoQ on price hike taken in 4Q, thus bolstering YoY gain at +3%. Unitary
opex stood flat YoY, aided by fall in input costs (lower petcoke prices,
reduction in fuel consumption rate, increased blended cem). However, the
benefit was moderated on neg op-lev. Healthy pricing thus boosted unitary
EBITDA to solid Rs 1,139/MT (+14% YoY), restricting consol EBITDA decline
by 4% YoY. APAT grew 6% YoY on higher treasury gains and lower tax rate.
FY20 – Strong cash generation, debt reduction: While annual vol declined
4% YoY, NSR gained 5% YoY on healthy pricing during the year. This
coupled with 1% opex decline buoyed unitary EBITDA 34% YoY to Rs
1,142/MT (its all-time high). Thus, consol EBITDA/APAT jumped 28/51%
YoY. Additionally, the co reduced its working capital. These boosted OCF to
Rs 89bn (+50% YoY). As capex remained flat YoY at Rs 17bn, UTCEM’s net
debt fell 25% to Rs 164bn. Net Debt/EBITDA cooled off to 1.8x vs 3x YoY.
Concall/ capex updates: Nathdwara plant integration achieved in Q4.
Century plant’s brand integration achieved ~65% production. Falling
petcoke prices’ benefits to continue in FY21. Overall plant utilisation
improving MoM in May, mainly driven by retail demand. The Dalla Super
clinker plant is expected by Mar-21E, the upcoming SGUs (in UP and in
Eastern regions) to be delayed by at least six months owing to Covid impact.
Maintain BUY: We expect FY21E consol vol to fall 16% on sharp loss in 1H,
however, we build in 21% recovery in FY22E. The profit impact in FY21
should be moderated by falling energy cost and lower discretionary spends.
We maintain BUY with a TP of Rs 4,720 (15x FY22 consol EBITDA). We
continue to ascribe it premium valuations (10% higher vs its 10yr avg) for its
capacity & cost leadership and balance sheet discipline.
YE Mar
(Rs bn)
4Q
FY20
4Q
FY19
YoY
(%)
3Q
FY19
QoQ
(%) FY18 FY19 FY20 FY21E FY22E
Net Sales 107.5 123.7 (13.1) 103.5 3.8 309.8 416.1 421.2 352.4 426.3
EBITDA 24.4 25.4 (3.9) 21.1 16.0 61.5 73.5 94.2 81.8 97.0
APAT 11.3 10.6 6.2 8.0 40.9 25.7 25.1 37.9 30.7 41.6
AEPS (Rs) 39.2 38.8 1.1 27.8 40.9 93.6 91.3 131.3 106.4 144.1
EV /EBITDA (x)
18.9 16.9 12.6 14.1 11.5
EV/MT (Rs bn)
13.1 11.0 10.3 9.8 9.2
P/E (x)
39.8 40.8 27.0 33.3 24.6
RoE (%)
10.1 8.3 10.4 7.6 9.5
Source: Company, HSIE Research, Consolidated Financials
BUY
CMP (as on 20 May 2020) Rs 3,529
Target Price Rs 4,720
NIFTY 9,067
KEY
CHANGES OLD NEW
Rating Buy Buy
Price Target Rs 4,850 Rs 4,720
EBITDA % FY21E FY22E
(4.4) (3.1)
KEY STOCK DATA
Bloomberg code UTCEM IN
No. of Shares (mn) 289
MCap (Rs bn) / ($ mn) 1,018/13,463
6m avg traded value (Rs mn) 2,409
52 Week high / low Rs 4,905/2,910
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) (20.3) (14.2) (26.1)
Relative (%) 4.8 10.0 (4.4)
SHAREHOLDING PATTERN (%)
Dec-19 Mar-20
Promoters 60.19 59.70
FIs & Local MFs 13.07 14.15
FPIs 17.60 16.48
Public & Others 9.14 9.67
Pledged Shares 0.0 0.0
Source : BSE
Rajesh Ravi
+91-22-6171-7352
Saurabh Dugar
+91-22-6171-7353
Page | 2
UltraTech Cement: Results Review 4QFY20
Quarterly Consolidated Financial Snapshot
Particulars (Rs mn) 4QFY20 4QFY19 YoY (%) 3QFY20 QoQ (%)
Net Sales 107,456 123,706 (13.1) 103,538 3.8
Raw Materials 14,540 23,212 (37.4) 17,881 (18.7)
Power and Fuel 21,181 25,858 (18.1) 20,394 3.9
Employee 6,550 5,655 15.8 6,200 5.6
Transport 26,786 29,371 (8.8) 23,438 14.3
Other Exp 13,973 14,200 (1.6) 14,562 (4.0)
EBITDA 24,427 25,410 (3.9) 21,062 16.0
EBITDA margin (%) 22.7 20.5 219 20.3 239
Depreciation 6,724 6,409 4.9 6,730 (0.1)
EBIT 17,703 19,001 (6.8) 14,332 23.5
Other Income (Including EO Items) 23,099 1,306 1,669.4 776 2,878.5
Interest Cost 5,048 5,046 0.1 4,708 7.2
PBT - Reported 35,754 15,261 134.3 10,400 243.8
Tax 3,346 4,605 (27.4) 3,288 1.8
Tax rate (%) 9.4 30.2 (2,082) 31.6 (2,226)
(Min Intt)/ Sh of Assoc 19 (12) 8 151.9
RPAT 32,428 10,643 204.7 7,119 355.5
EO (Loss) / Profit (Net Of Tax) 21,120 - (906)
APAT 11,308 10,643 6.2 8,025 40.9
Adj PAT margin (%) 10.5 8.6 192 7.8 277
Source: Company, HSIE Research
Quarterly Performance Analysis (Grey+ white/putty)
Particulars 4QFY20 4QFY19 YoY (%) 3QFY20 QoQ (%)
Installed capacity Grey (mn MT) 28.5 28.0 1.8 28.0 1.8
Grey Sales Volume (mn MT) 21.1 25.0 (15.6) 20.6 2.8
Grey utilisation (%) 74.2 89.5 73.5
Total sales volume (mn MT) 21.4 25.4 (15.7) 20.9 2.6
Trends (Rs/MT)
Net avg realisation 5,012 4,865 3.0 4,954 1.2
Raw material cost 678 913 (25.7) 856 (20.7)
Power and fuel cost 988 1,017 (2.8) 976 1.2
Employee cost 305 222 37.4 297 3.0
Transport cost 1,249 1,155 8.2 1,121 11.4
Other expenses (includes clinker tx) 652 558 16.7 697 (6.5)
Operating cost 3,873 3,865 0.2 3,946 (1.9)
EBITDA 1,139 999 14.0 1,008 13.1
Source: Company, HSIE Research
The co booked Rs 21.1bn as
deferred tax liability
reversals in 4Q, factoring
in the adjustments due to
changes in the cop tax rate.
We have excluded the same
from APAT (and
considered as exceptional
for 4Q). Reported PAT
surged 2x/3.6x YoY to Rs
32.5bn.
Grey vols fell 16% YoY and
white/putty vol fell 22%
YoY.
Despite lower vols, margin
expanded on account of
falling fuel prices,
increased energy efficiency
and higher blended cement
prod. The co has also
streamlined Nathdwara
operations and has
achieved brand integration
for 65% of Century plants’
production, thereby
boosting margin
Page | 3
UltraTech Cement: Results Review 4QFY20
Operational Trends and Assumptions
Particulars FY17 FY18 FY19 FY20 FY21E FY22E
Cement Cap (mn MT) 71.6 88.8 113.2 115.6 117.6 121.0
Sales Volume (mn MT) 53.7 64.6 85.8 82.5 69.0 83.5
YoY change (%) 2.1 20.3 32.7 (3.8) (16.3) 21.0
Utilisation (%) 75.0 72.8 75.8 71.4 58.7 69.0
(Rs/ MT trend)
NSR 4,724 4,794 4,851 5,106 5,106 5,106
YoY change (%) (1.2) 1.5 1.2 5.3 - -
Raw material cost 822 818 814 765 742 768
Power and fuel cost 795 980 1,100 1,026 924 951
Transport cost (in + out) 1,099 1,131 1,203 1,179 1,138 1,172
Employee cost 283 280 267 304 374 347
Other expenses 754 633 611 690 742 706
Total Opex 3,754 3,843 3,995 3,965 3,920 3,944
EBITDA per MT 970 951 857 1,141 1,186 1,162
Source: Company, HSIE Research
Change in Estimates
Rs Mn FY21E Old
FY21E
Revised Change %
FY22E
Old
FY22E
Revised Change %
Net Revenues 398,672 352,439 (11.6) 452,582 426,277 (5.8)
EBITDA 85,628 81,846 (4.4) 100,080 97,023 (3.1)
APAT 31,958 30,723 (3.9) 42,654 41,588 (2.5)
AEPS 110.7 106.4 (3.9) 147.8 144.1 (2.5)
Source: Company, HSIE Research
We have updated our fin
model for FY19/20 consol
P&L, BS and CF
statements as reported.
UltraTech’s vol fell 4%
YoY in FY20. We model in
16% fall in FY21 on Covid
impact, but expect it to
recover in FY22E
We factor in stable NSR
during FY21/22E. This
along with low energy
costs to sustain op margin
at ~Rs1,170/MT levels in
FY21/22E
We cut vol est by 12/6% for
FY21/22E factoring in
higher impact of Covid
lockdown on demand
However, we increase
margin est owing to lower
cost pressure
Thus, we trim EBITDA est
by 4/3% for FY21/22E
Page | 4
UltraTech Cement: Results Review 4QFY20
Long term op performance trends (TTM basis)
We have plotted UltraTech Cement’s operating metrics on trailing 12-month (TTM)
basis, to assess its long term performance trends
UltraTech Cement’s vol declined 4% YoY in FY20 after a
gap of seven yrs!!
NSR continued to firm up on healthy pricing in many
mkts and increased brand integration for Century
Source: Company, HSIE Research
Source: Company, HSIE Research
Cost controls and falling petcoke and diesel prices kept
opex inflation in check
Opex trends: Stable fixed costs, falling input and
logisitcs cost
Source: Company, HSIE Research Source: Company, HSIE Research
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Input costs Freight Fixed expenses Total opex -RHS
Rs /MT Rs /MT
Page | 5
UltraTech Cement: Results Review 4QFY20
Long term performance trends (TTM basis) continued
UltraTech Cem’s unitary EBITDA firmed up to its all
time high levels on solid realisation gains
UltraTech Cem’s EBITDA margin expanded further to
its highest levels in last 7-years!
Source: Company, HSIE Research Source: Company, HSIE Research
Peer Set Comparison
Company Mcap
(Rs bn)
CMP
(Rs/sh) Reco TP
EV/EBITDA EV/MT (Rs bn) Net D:E (x) RoE (%)
FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E
UltraTech Cem 1,018 3,529 BUY 4,720 12.6 14.1 11.5 10.28 9.84 9.22 0.4 0.3 0.2 10.4 7.6 9.5
Shree Cement 676 19,410 REDUCE 17,900 17.9 20.8 17.0 15.19 14.80 13.59 (0.3) (0.3) (0.3) 13.9 7.9 9.7
Ambuja Cements 357 180 BUY 210 9.0 10.1 8.5 6.53 6.17 6.16 (0.7) (0.7) (0.7) 6.8 5.3 6.0
ACC 220 1,171 BUY 1,440 7.2 9.9 8.1 5.45 5.61 5.66 (0.4) (0.4) (0.3) 11.6 8.4 10.6
Ramco Cements 132 562 BUY 670 13.6 14.1 10.4 8.28 7.94 7.18 0.4 0.4 0.3 12.1 10.2 12.7
Dalmia Bharat 93 485 BUY 930 6.6 8.4 6.5 5.06 4.34 3.67 0.4 0.4 0.4 2.0 (1.2) 0.5
JK Cement 84 1,093 BUY 1,355 9.8 10.1 9.2 6.69 6.76 7.17 0.9 0.9 1.0 14.9 11.8 13.9
Star Cement 29 70 BUY 100 7.0 7.5 6.5 4.82 5.12 5.45 (0.1) (0.0) 0.1 15.7 13.5 16.1
JK Lakshmi 24 200 BUY 370 5.3 6.6 5.5 2.93 3.06 2.70 0.6 0.7 0.6 13.8 9.3 11.4
Orient Cement 8.2 40 BUY 85 6.4 6.5 5.9 2.56 2.63 3.00 1.1 1.2 1.3 4.7 4.6 12.3
Deccan Cements 3.0 212 BUY 370 3.5 3.2 3.6 1.21 1.10 1.72 (0.1) (0.1) 0.2 9.9 7.9 11.8
Source: Company, HSIE Research, For ACC and Ambuja, the financial year is CY19/CY20E/CY21E resp
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Page | 6
UltraTech Cement: Results Review 4QFY20
Financials Consolidated Income Statement YE Mar (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E
Revenues 253,749 309,786 416,088 421,248 352,439 426,277
Growth % 0.9 22.1 34.3 1.2 (16.3) 21.0
Raw Material 44,169 52,888 69,831 63,131 51,234 64,137
Power & Fuel 42,720 63,341 94,361 84,679 63,762 79,435
Freight Expense 59,031 73,100 103,145 97,254 78,520 97,819
Employee cost 15,223 18,102 22,911 25,094 25,847 28,949
Other Expenses 40,482 40,904 52,371 56,922 51,230 58,914
EBITDA 52,124 61,452 73,469 94,168 81,846 97,023
EBIDTA Margin (%) 20.5 19.8 17.7 22.4 23.2 22.8
EBITDA Growth % 6.4 17.9 19.6 28.2 (13.1) 18.5
Depreciation 13,484 18,479 24,507 27,022 27,573 29,993
EBIT 38,640 42,972 48,962 67,146 54,272 67,030
Other Income (Including EO Items) 6,481 2,420 3,496 26,692 8,000 7,500
Interest 6,401 12,376 17,779 19,857 19,000 15,118
PBT 38,720 33,016 34,679 73,982 43,272 59,411
Tax 11,585 10,770 10,754 15,865 12,549 17,823
Minority Int - - - - - -
RPAT 27,135 22,246 23,925 58,117 30,723 41,588
EO (Loss) / Profit (Net Of Tax) - (3,466) (1,139) 20,214 - -
APAT 27,135 25,712 25,064 37,903 30,723 41,588
APAT Growth (%) 9.4 (5.2) (2.5) 51.2 (18.9) 35.4
Source: Company, HSIE Research
Consolidated Balance Sheet
YE Mar (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E
SOURCES OF FUNDS
Share Capital 2,745 2,746 2,746 2,886 2,886 2,886
Reserves And Surplus 241,174 261,066 334,760 388,269 415,240 451,921
Total Equity 243,919 263,812 337,507 391,155 418,126 454,807
Minority Int 97 160 122 75 75 75
Long-term Debt 63,708 158,635 206,504 173,675 153,675 113,675
Short-term Debt 21,037 36,168 46,866 55,304 55,304 55,304
Total Debt 84,745 194,802 253,370 228,979 208,979 168,979
Deferred Tax Liability 27,726 31,827 64,114 49,120 49,120 49,120
Long-term Liab+ Provisions 3,355 1,917 1,796 13,039 13,691 14,375
TOTAL SOURCES OF FUNDS 359,842 492,518 656,908 682,368 689,991 687,357
APPLICATION OF FUNDS
Net Block 248,186 386,790 503,457 506,835 494,262 499,268
Capital WIP 9,215 15,112 11,533 9,196 16,196 1,196
Goodwill 10,851 10,363 62,989 62,989 62,989 62,989
Other Non-current Assets 7,787 29,649 43,804 47,428 49,799 50,604
Total Non-current Investments 246 108 187 232 232 232
Total Non-current Assets 276,286 442,022 621,970 626,680 623,478 614,290
Inventories 24,006 32,676 40,990 41,483 36,301 46,891
Debtors 17,571 22,206 27,870 22,383 24,671 34,102
Cash and Cash Equivalents 89,147 56,552 36,423 64,447 75,246 76,532
Other Current Assets (& Loans/adv) 15,082 18,049 38,121 38,379 41,587 42,116
Total Current Assets 145,806 129,483 143,404 166,692 177,806 199,641
Creditors 18,486 23,849 31,597 35,014 26,433 31,971
Other Current Liabilities & Provns 43,763 55,138 76,869 75,989 84,859 94,603
Total Current Liabilities 62,250 78,987 108,466 111,003 111,292 126,574
Net Current Assets 83,556 50,496 34,938 55,688 66,513 73,067
TOTAL APPLICATION OF FUNDS 359,842 492,518 656,908 682,368 689,991 687,357
Source: Company, HSIE Research
Page | 7
UltraTech Cement: Results Review 4QFY20
Consolidated Cash Flow
YE Mar (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E
Reported PBT 38,721 33,015 34,685 52,423 43,272 59,411
Non-operating & EO Items (6,409) (4,010) (3,356) (5,869) (8,000) (7,500)
Interest Expenses 6,401 12,376 17,779 19,857 19,000 15,118
Depreciation 13,484 18,479 24,507 27,022 27,573 29,993
Working Capital Change 5,291 (12,554) (6,957) 4,503 (1,745) (5,389)
Tax Paid (7,437) (8,429) (7,101) (8,914) (12,549) (17,823)
OPERATING CASH FLOW ( a ) 50,050 38,877 59,557 89,020 67,551 73,811
Capex (13,636) (18,828) (16,482) (17,037) (22,000) (20,000)
Free Cash Flow (FCF) 36,414 20,050 43,075 71,983 45,551 53,811
Investments (11,636) 36,774 26,614 (26,266) - -
Non-operating Income 468 670 1,007 1,210 8,000 7,500
Others
INVESTING CASH FLOW ( b ) (24,803) 18,616 11,138 (42,094) (14,000) (12,500)
Debt Issuance/(Repaid) (16,153) (42,069) (46,482) (27,164) (20,000) (40,000)
Interest Expenses (6,144) (12,099) (16,850) (18,944) (19,000) (15,118)
FCFE 14,117 (34,118) (20,257) 25,875 6,551 (1,307)
Share Capital Issuance 66 157 (775) (3) - -
Dividend (3,119) (3,340) (3,462) (3,800) (3,752) (4,907)
FINANCING CASH FLOW ( c ) (25,350) (57,351) (67,568) (49,911) (42,752) (60,025)
NET CASH FLOW (a+b+c) (103) 142 3,127 (2,985) 10,799 1,286
EO Items, Others 38,721 33,015 34,685 52,423 43,272 59,411
Closing Cash & Equivalents (6,409) (4,010) (3,356) (5,869) (8,000) (7,500)
Key Ratios
FY17 FY18 FY19 FY20 FY21E FY22E
PROFITABILITY %
EBITDA Margin 20.5 19.8 17.7 22.4 23.2 22.8
EBIT Margin 15.2 13.9 11.8 15.9 15.4 15.7
APAT Margin 10.7 8.3 6.0 9.0 8.7 9.8
RoE 11.7 10.1 8.3 10.4 7.6 9.5
RoIC 9.4 8.2 6.4 8.5 6.3 7.7
RoCE 8.9 7.7 6.4 8.6 6.4 7.6
EFFICIENCY
Tax Rate % 29.9 32.6 31.0 21.4 29.0 30.0
Fixed Asset Turnover (x) 0.9 0.9 0.8 0.6 0.5 0.6
Inventory (days) 35 38 36 36 38 40
Debtors (days) 25 26 24 19 26 29
Other Current Assets (days) 22 21 33 33 43 36
Payables (days) 27 28 28 30 27 27
Other Current Liab & Provns (days) 63 65 67 66 88 81
Cash Conversion Cycle (days) (8) (7) (1) (8) (9) (3)
Net Debt/EBITDA (x) (0.1) 2.2 3.0 1.7 1.6 1.0
Net D/E (0.0) 0.5 0.6 0.4 0.3 0.2
Interest Coverage 6.0 3.5 2.8 3.4 2.9 4.4
PER SHARE DATA (Rs)
EPS 98.8 93.6 91.3 131.3 106.4 144.1
CEPS 148.0 160.9 180.5 224.9 202.0 248.0
Dividend 10.0 10.5 11.5 13.0 13.0 17.0
Book Value 888.9 961.3 1,229.3 1,355.5 1,448.9 1,576.0
VALUATION
P/E (x) 37.7 39.8 40.8 27.0 33.3 24.6
P/Cash EPS (x) 25.2 25.1 21.1 12.0 17.6 14.3
P/BV (x) 4.2 3.9 3.0 2.6 2.4 2.3
EV/EBITDA (x) 19.6 18.9 16.9 12.6 14.1 11.5
EV/MT (Rs bn) 14.23 13.08 10.96 10.28 9.84 9.23
Dividend Yield (%) 0.3 0.3 0.3 0.4 0.4 0.5
OCF/EV (%) 4.9 3.3 4.8 7.5 5.8 6.6
FCFF/EV (%) 3.6 1.7 3.5 6.1 3.9 4.8
FCFE/M Cap (%) 1.4 (3.3) (2.0) 2.5 0.6 (0.1)
Source: Company, HSIE Research
Page | 8
UltraTech Cement: Results Review 4QFY20
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential
Date CMP Reco Target
10-Jul-19 4,499 BUY 5,140
9-Aug-19 4,233 BUY 5,280
22-Sep-19 4,270 BUY 5,330
10-Oct-19 4,044 BUY 5,330
23-Oct-19 4,249 BUY 5,350
30-Dec-19 4,056 BUY 5,350
10-Jan-20 4,388 BUY 5,350
25-Jan-20 4,641 BUY 5,600
2-Mar-20 4,220 BUY 5,900
5-Mar-20 4,173 BUY 5,900
17-Apr-20 3,539 BUY 4,850
7-May-20 3,253 BUY 4,850
21-May-20 3,529 BUY 4,720
From 2nd March 2020, we have moved to new rating system
RECOMMENDATION HISTORY
2,800
3,300
3,800
4,300
4,800
5,300
5,800
Ma
y-1
9
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Ma
r-2
0
Ap
r-2
0
Ma
y-2
0
Ultratech TP
Page | 9
UltraTech Cement: Results Review 4QFY20
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