ultratech cement (ultcem) | 4,212
TRANSCRIPT
July 20, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
Improving realisation, stagnant volumes…
UltraTech Cement reported a mixed set of numbers. While revenues
were below our estimates, EBITDA, PAT were above our estimates
mainly led by lower raw material cost and interest expenses
Revenues increased 6.4% YoY to | 6,626.5 crore (below I-direct
estimate of | 6,854.4 crore) mainly led by 6.4% YoY increase in
realisation to | 5,020 (vs. I-direct estimate of | 4,945) while volumes
were flat at 13.2 MT (below I-direct estimate of 13.9 MT)
The EBITDA margin increased 71 bps YoY to 23.5% (above I-direct
estimate of 22.3%) mainly due to a decline in raw material cost (down
12.4% YoY). EBITDA/tonne increased 9.7% YoY to | 1,182/tonne (better
than I-direct estimate of | 1,100/tonne)
The company has completed the acquisition of Jaiprakash Associates
(with capacity of 21.2 MT)
Improving cement demand indicates long term up cycle in cement…
Over FY08-17, utilisation in the cement sector witnessed a decline from 83%
in FY08 to 64% in FY17 mainly due to capacity addition (incremental supply
of 223 MT) outpacing demand (incremental demand of 105 MT). As a result,
industry capacity doubled from 198 MT in FY08 to 421 MT in FY17 vs.
demand, which increased from 164 MT in FY08 to 269 MT in FY17. However,
we expect the demand-supply balance to improve in the next few years with
slower pace of capacity addition and likely improvement in demand
positively impacting utilisation levels. Cement sector utilisation is expected
to improve from 64% in FY17 to 72% in FY19E leading to higher margins for
cement players (driven by operating leverage benefits).
Rural demand to pick up on the back of healthy monsoon
A pick-up in housing on the back of healthy demand from first home buyers,
better monsoons and a revival in the rural economy will play a key role in
driving cement demand over the next few years. Apart from this, the
company will be a key beneficiary of improving cement demand on account
of higher budgetary allocation towards development of roads & highways
along with governments focus on rural development & affordable housing.
We expect cement demand to reach 311 MT by FY19E (i.e. at 7.5%CAGR) vs.
(CAGR of 4.7% in the last five years). In addition, we believe a stable pricing
scenario will positively impact revenues and margins in the next three years.
Consolidation of Jaypee - long term value accretive deal
The consolidation of 21.2 MT cement assets of Jaiprakash Associates
(Jaypee) will take the company’s total capacity to ~93 MT. This will enable
the company to further strengthen its leadership in India, going forward, with
a market share of over ~22% and become the fourth largest player globally.
We believe the transaction will be cash break even by Q1FY19 and be EPS
accretive by FY19E.
Undisputed leader of cement industry; maintain BUY!
With the acquisition of Jaypee and capacity expansion at Madhya Pradesh,
the company will have a domestic capacity of 93 MT and market share of
22% on a pan-India basis making it the undisputed leader of the cement
industry. Further, increased government spend, a revival in the rural
economy, slowdown in capacity addition and consolidation in the industry is
expected to put UltraTech in a sweet spot to capture future growth. In
addition, improving realisation and the company’s focus on cost
rationalisation is expected to aid margins. With industry leading growth,
higher margins and a healthy balance sheet, we maintain our BUY rating
with a target price of | 4,750/share (i.e. at 17.5x FY19E EV/EBITDA).
UltraTech Cement (ULTCEM) | 4,212
Rating matrix
Rating : Buy
Target : | 4750
Target Period : 9-12 months
Potential Upside : 13%
What’s changed?
Target Price Unchanged
EPS FY18E* Introduced at | 90.8
EPS FY19E* Introduced at | 130.0
Rating Unchanged
Quarterly performance
Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%)
Revenue 6,626.5 6,229.5 6.4 6,595.3 0.5
EBITDA 1,560.1 1,422.5 9.7 1,278.2 22.1
EBITDA (%) 23.5 22.8 71 bps 19.4 416 bps
PAT 890.6 774.9 14.9 688.3 29.4
Key financials
| Crore FY16 FY17 FY18E* FY19E*
Net Sales 23708.8 23891.4 29081.0 35166.9
EBITDA 4626.6 4969.0 5912.1 8107.7
Net Profit 2370.2 2627.7 2490.3 3567.3
EPS (|) 86.4 95.8 90.8 130.0
*We have incorporated Jaypee financials
Valuation summary
FY16 FY17 FY18E* FY19E*
PE (x) 48.7 43.9 46.4 32.4
EV to EBITDA (x) 25.6 22.9 21.9 15.6
EV/Tonne(US$) 292 264 232 220
Price to book (x) 5.5 4.8 4.4 4.0
RoNW (%) 11.3 10.8 9.6 12.5
RoCE (%) 11.6 12.1 9.2 12.3
Stock data
Amount
Mcap | 115440 crore
Consolidated Debt (FY17) | 20470 crore
Cash & Invest (FY17) | 8345 crore
EV | 127565 crore
52 week H/L | 4531 / | 3052
Equity cap | 274.2 crore
Face value | 10
Particular
Price performance
1M 3M 6M 12M
ACC 9.8 17.5 32.0 7.9
Ambuja Cement 11.9 6.8 22.8 -0.3
Shree Cement 4.0 5.1 25.1 19.4
UltraTech Cement 4.2 5.1 27.2 20.6
Research Analyst
Rashesh Shah
Devang Bhatt
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q1FY18 Q1FY18E Q1FY17 YoY (%) Q4FY17 QoQ (%) Comments
Net Sales 6,626.5 6,854.4 6,229.5 6.4 6,595.3 0.5 The increase in revenue was driven by better pricing environment on pan-India basis
Other Incomes 165.2 180.0 150.4 9.8 240.1 -31.2
Raw Material Expenses 954.7 1,147.6 1,089.4 -12.4 1,150.8 -17.0
The decline in RM cost was mainly due to higher usage of additives and improved
clinker to cement conversion ratio
Employee Expenses 380.3 346.5 346.6 9.7 344.9 10.3
Power and fuel 1,217.4 1,143.5 923.7 31.8 1,154.3 5.5
The increase in power & fuel cost was mainly due to higher pet coke prices
(increased 2x from Q1FY17), partly offset by reduced power consumption and
enhanced WHRMS share
Freight 1,588.0 1,679.8 1,545.2 2.8 1,664.5 -4.6 Increase in diesel prices (up 9.0% YoY) led to higher freight cost during the quarter
Others 926.1 1,011.8 902.1 2.7 1,002.7 -7.6
EBITDA 1,560.1 1,525.3 1,422.5 9.7 1,278.2 22.1
EBITDA Margin (%) 23.5 22.3 22.8 71 bps 19.4 416 bps Lower RM cost led to rise in EBITDA margins
Depreciation 309.8 327.6 302.7 2.3 335.7 -7.7
Interest 128.5 152.9 152.5 -15.7 152.9 -16.0
PBT 1,287.0 1,224.8 1,117.7 15.1 1,016.0 26.7
Total Tax 396.3 404.2 342.8 15.6 327.6 21.0
PAT 890.6 820.6 774.9 14.9 688.3 29.4 Lower interest cost and increase in other income led to higher PAT
Key Metrics
Volume (MT) 13.20 13.86 13.20 0.0 13.74 -3.9
Sand availability issues in north & west coupled with drought in Tamil Nadu led to
flat volumes in Q1FY18
Realisation (|) 5,020 4,945 4,719 6.4 4,801 4.6 Healthy pricing in company's key markets helped in registering better realisation
EBITDA per Tonne (|) 1,182 1,100 1,078 9.7 931 27.0 The improvement in EBITDA/t was led by lower RM cost/t
Source: Company, ICICIdirect.com Research
Change in estimates
FY19E
(| Crore) Old* New % Change Old* New % Change Comments
Revenue NA 29,081.0 NA NA 35,166.9 NA
We expect revenues to increase at a CAGR of 21.3% in FY17-19E
led by Jaypee acquisition and healthy demand environment
EBITDA NA 5,912.1 NA NA 8,107.7 NA
EBITDA Margin (%) NA 20.3 NA NA 23.1 NA
We expect EBITDA margins to remain under pressure in FY18E
mainly led by lower EBITDA/t of Jaypee assets
PAT NA 2,490.3 NA NA 3,567.3 NA
EPS (|) NA 90.8 NA NA 130.0 NA
FY18E
Source: Company, ICICIdirect.com Research, * We have incorporated financials of Jaypee hence previous estimates are not comparable
Assumptions
Comments
FY14 FY15 FY16 FY17 FY18E FY19E FY18E FY19E
Volume (MT) 42.6 45.3 48.4 48.9 58.7 68.5 NA NA
We expect volumes to increase at a CAGR of 18.3% over FY17-19E
led by Jaypee acquisition and higher infra spend
Realisation (|) 4,713 4,995 4,894 4,883 4,953 5,131 NA NA
EBITDA per Tonne (|) 849 863 952 1,015 1,007 1,183 NA NA We expect EBITDA/t to improve from FY18E onwards
EarlierCurrent
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Annual Report Analysis
The company’s domestic cement capacity during the year increased
2.0% YoY to 66.3 MT. However, the capacity utilisation declined from
76.0% to 72.0% mainly led by miniscule increase in volumes (from 47.6
MT in FY16 to 47.9 MT in FY17) and higher capacity base
Going forward, the company intends to set up 3.5 MT capacity in Dhar,
Madhya Pradesh at a cost of | 2600 crore. The capacity is expected to
be operational by Q4FY19. Apart from organic growth, acquisition of
21.2 MT capacity of Jaiprakash Associate will take the total domestic
capacity to ~93 MT enabling the company to maintain its leadership
position
In FY17, the company undertook various cost saving measures, which
led to 1.9% YoY decline in cost/tonne. In terms of power & fuel cost the
company reported a decline of 8.3% YoY mainly due to increase in the
usage of petcoke (from 70.0% in FY16 to 74.0% in FY17), industrial
waste, and efficiency improvements. Besides petcoke, increase in share
of waste heat recovery to 7% of the total power requirement of the
company led to reduced consumption of coal and petcoke (by ~0.25
MT). In addition, logistic cost/t declined 2.5% YoY mainly led by
reduction in the average lead distance, improved utilisation of new
cement grinding capacities, rationalisation of road freight rates and
increased coastal movement. However, employee cost increased by
5.2% YoY due to annual increments and commissioning of new plants
Finance cost during the year increased by | 59 crore to | 571 crore
mainly led by provision for interest on entry tax pertaining to earlier
years and lower benefit of interest subsidy due to the completion of the
government grant period
Cash from operations of the company increased 11.5% YoY mainly led
by higher margins and reduction in working capital requirement.
Inventory days of the company declined from 40 days to 36 days mainly
due to reduction in inventory of stores and spares
During the year the company incurred a capex of ~| 1,200 crore for
completion of new grinding capacity commissioned during the year and
meeting regulatory requirements, plant upkeep & improving efficiencies.
For FY18E, the company plans to incur capex of | 2,200 crore for
capacity expansion projects, regulatory requirements and plant
infrastructure
Exhibit 1: Fuel mix trend
Fuel mix FY12 FY13 FY14 FY15 FY16 FY17
Petcoke (%) 26 38 48 52 70 74
Imported coal (%) 44 35 26 26 20 14
Indigenous coal and others (%) 30 27 26 22 10 12
Total 100 100 100 100 100 100
Source: Company, ICICIdirect.com Research
Exhibit 2: Transport mix trend
Transport mix FY12 FY13 FY14 FY15 FY16 FY17
Rail (%) 36 34 34 29 28 25
Road (%) 61 63 63 67 69 72
Sea (%) 3 3 3 4 3 4
Total 100 100 100 100 100 100
Source: Company, ICICIdirect.com Research
WHRMS capacity and share
10.5
33.2
59 59
0
20
40
60
80
FY14 FY15 FY16 FY17
0
2
4
6
8
WHRMS capacity WHRMS share
ICICI Securities Ltd | Retail Equity Research Page 4
Improving industry dynamics indicate long term up cycle in cement
Exhibit 3: Demand supply scenario
198216
276304
319
357 368392
409421 424 430
311
164178
203214
229241
247255
264 269288
0
100
200
300
400
500
FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18E FY19E
0
20
40
60
80
100
Capacity Demand Utilisation (%)
Demand expected to register strong growth in FY17-19E
Demand is expected to improve in the south mainly led by an improvement
in infrastructure, irrigation especially in AP, Telangana and Amaravati.
Further, the western region is expected to witness healthy growth led by
pick up in demand from Mumbai. In addition, post monsoon cement
demand and disbursement of Seventh Pay Commission is expected to drive
cement in rural areas. However, demand in the urban region is expected to
remain subdued due to RERA compliance and high unsold inventory.
Key takeaways in Q1FY18 from conference call
The company expects industry as a whole to grow 5.0% in FY18E
In the long term, UltraTech expects logistic cost to be lower due to
introduction of GST
In Q2FY18, there will be one time impact of Jaypee acquisition in the
P&L. The company expects to ramp up Jaypee capacity utilisation to
60% by Q1FY19 from current 15.0%. Further, it expects to ramp up
Jaypee capacity utilisation to 70% in FY19E
Jaypee sells cement at | 15-20/bag lower than tier-1 players. Further
it has incentives of | 120/t in terms of vat incentives, which will
expire by FY19E. In terms of fuel mix, the company plans to ramp up
pet coke consumption to 60-70% over the coming years
The company generates 40% of its revenues from rural areas
In terms of transport mix, 70.0% was through road
Average prices of petcoke for Q1FY18 were at US$85/tonne while
the current price according to the company is ~US$87-90
White cement revenues during Q1FY18E were at | 370 crore while
RMC revenues were at | 475 crore
The current cement to clinker conversion ratio is 1.34, which the
company plans to further ramp down
The capacity utilisation region wise was North 80%, West 80%, East
90%, South 60% and Central 70%.
ICICI Securities Ltd | Retail Equity Research Page 5
Jaypee acquisition to help company to be undisputed leader
UltraTech Cement is the largest player in capacity terms (~67.8 MT) with a
market share of over ~17% in India. The acquisition of 21.2 MT cement
assets of Jaiprakash Associates (Jaypee) will enable the company to
maintain its leadership in India, going forward. This move will increase its
capacity to 93 MT, making it the largest cement player in the domestic
market (fourth largest player globally) with a market share of over 22%. With
this deal, UltraTech will have a presence across regions (except North East).
Jaypee’s cement assets are spread across regions viz. 1) Central region (11.4
MT), 2) North (4.8 MT) and 3) South (5 MT). The location of 11 plants of
Jaypee complements the existing 40 of UltraTech. The acquisition is
expected to give UltraTech access to newer markets of Satna (11.4 MT) and
coastal Andhra Pradesh (5.0 MT). We expect Jaypee to register utilisation of
~47% in FY18E and 68% in FY19E and EBITDA/t of | 543 and | 1050 in
FY18E and FY19E, respectively.
Exhibit 4: Post acquisition regional capacity share
16
30
14
37
19
0
5
10
15
20
25
30
35
40
North West South Cental East
Source: Company, ICICIdirect.com Research
Operates at healthy EBITDA/tonne vis-à-vis industry
With lower lead distances due to a pan-India presence, captive power plants
and higher sales realisations due to a higher trade mix coupled with higher
white cement sales realisation, the company generates highest
EBITDA/tonne in the industry. It has also been able to reduce its power
consumption per tonne gradually through various initiatives to ~74/kwh.
Further, the company is taking various cost saving initiatives like increasing
WHRMS capacity (from 59 MW to 68 MW), increased usage of pet coke,
which will further help in lowering power cost. Apart from this, the company
has set up various grinding units, which will help reduce freight cost.
Further, higher utilisation of grinding unit will further aid margins.
Exhibit 5: Gradual reduction in power requirement
Power mix FY12 FY13 FY14 FY15 FY16 FY17
TPP 78.0 79.0 81.0 82.0 82.0 80.0
WHRS 0.4 0.3 0.3 2.0 5.0 7.0
Others 22.0 21.0 19.0 16.0 13.0 13.0
Total 100.4 100.3 100.3 100.0 100.0 100.0
Source: Company, ICICIdirect.com Research,*FY14,FY16 figures provisional
Exhibit 6: Higher EBITDA/tonne vis-à-vis peer group
1,0
39
882
832
894 1,0
12
1,0
78
978
982
931
851
662
687
673 8
00
959
830
743
723
-
200
400
600
800
1,000
1,200
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
EB
ITD
A/tonne (
|)
Ultratech Industry
Source: Company, ICICIdirect.com Research
Peer set includes ACC, Ambuja, Shree cement and India cement
ICICI Securities Ltd | Retail Equity Research Page 6
Expect revenue CAGR of 21.3% during FY17-19E
Revenues have grown at a CAGR of 5.6% in FY12-17 mainly led by moderate
growth in volumes of 3.3% CAGR and realisation growth of 2.2% CAGR in
FY12-17. However, in FY17-19E, we expect volume CAGR of 18.3% in FY17-
19E mainly led by higher infra spend by the government and acquisition of
Jaypee Assets. Further, we expect realisation to increase at 2.5% CAGR in
FY17-19E led by a pick-up in demand. Consequently, revenues are expected
to grow at 21.3% CAGR in the next two years.
Exhibit 7: Expect volume led revenue CAGR of 21.3% in FY17-19E
20021 20078
2265223709 23891
29081
35167
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Sales (| crore)
Source: Company, ICICIdirect.com Research
Exhibit 8: Capacity addition plans (standalone)
Unit Grey Cement
Opening FY16 66.3
Additions Q1FY17 Bihar 1.6
Q2FY17 Jaypee 21.2
Q4FY19 Dhar, MP 3.5
Closing FY20 92.6
Source: Company, ICICIdirect.com Research
Exhibit 9: Volume to grow at CAGR of 18.3% in FY17-19E
42.645.3
48.4 48.9
58.7
68.5
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
FY14 FY15 FY16 FY17 FY18E FY19E
Sales Volumes
Source: Company, ICICIdirect.com Research
Exhibit 10: Realisation to pick up led by uptick in demand
4713
4995
4894 4883
4953
5131
4500
4600
4700
4800
4900
5000
5100
5200
FY14 FY15 FY16 FY17 FY18E FY19E
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Realisation (|/tonne) -LS Growth (%) -RS
Source: Company, ICICIdirect.com Research
Exhibit 11: Volume flat in Q1FY18…
11.912.4
11.111.6
13.6 13.2
11.2 11.3
13.713.2
0
5
10
15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Million T
onne
Sales Volume
Source: Company, ICICIdirect.com Research
Exhibit 12: Quarterly realisation trend
4794 4984
4872
4708
4719
4827
4946
4801 5020
4000
4250
4500
4750
5000
5250
5500
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
(|
)
Realisation
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 7
Margins to improve led by operating efficiency
Going forward, cost/t is expected to increase led by acquisition of Jaypee
Cement. However, with the pick-up in demand and improving utilisation and
EBITDA/t at Jaypee in coming quarters will lead to an improvement in
margins in FY19E.
Exhibit 13: Expect EBITDA/tonne of | 1,183 in FY19E
1084
849 863952
1015 1007
1183
0
200
400
600
800
1000
1200
1400
FY13 FY14 FY15 FY16 FY17 FY18E FY19E
EBITDA/Tonne
Source: Company, ICICIdirect.com Research
Exhibit 14: Margins to improve led by improvement in realisations
22.6
18.017.3
19.5
20.820.3
23.1
10.0
15.0
20.0
25.0
30.0
FY13 FY14 FY15 FY16 FY17 FY18E FY19E
EBITDA Margin (%)
Source: Company, ICICIdirect.com Research
Exhibit 15: Q1FY18 EBITDA per tonne at | 1182/t
882832
894
10121078
978 982931
1182
0
200
400
600
800
1000
1200
1400
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
| p
er t
onne
Source: Company, ICICIdirect.com Research
Exhibit 16: Quarterly margin trend
18.416.7
18.3
21.5
22.8
20.3
19.9
19.4
23.5
0
5
10
15
20
25Q
1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
(%
)
EBITDA Margin
Source: Company, ICICIdirect.com Research
Expect net profit CAGR of 14.6% during FY17-19E
In FY18E we expect a dip in net margins mainly due to higher interest
expenses (mainly led by acquisition of Jaypee) and lower EBITDA margins.
However, we expect margins to improve in FY19E led by higher utilisation at
Jaypee and improving demand.
Exhibit 17: Profitability trend
2370.22655.6
2144.52014.7
2627.7
2490.3
3567.313.3
10.7
8.9 10.0
11.0
8.6
10.1
0
1000
2000
3000
4000
FY13 FY14 FY15 FY16 FY17E FY18E FY19E
| c
rore
0.0
5.0
10.0
15.0
(%
)
Net profit - LS Net profit margin -RS
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 8
Outlook and valuation
We believe the industry’s capacity utilisation bottomed out at ~64% in FY17.
With the government taking measures to boost infrastructure development
through steps like long-term fund availability for major infra projects, higher
budgetary allocation towards public infrastructure development, we expect
robust cement demand growth in FY17-19E to reach 311 MT by FY19E (i.e.
at CAGR of 7.5%) vs. (CAGR of 4.7% over last five years). The company
expects government infra spends to gain momentum, especially on
construction of concrete roads and creation of new capital city of Amaravati
in Andhra Pradesh. UltraTech is well positioned to reap the benefit of a
recovery in demand and generate healthy free cash flows in future. We
assign premium valuations multiple to UltraTech vs. its peer companies due
to its ability to generate higher margins and healthy cash flows. Hence, we
continue to maintain our positive view on the stock with a BUY rating and a
target price to | 4,750/share (i.e. at 17.5x FY19E EV/EBITDA).
Exhibit 18: Key assumptions
| per tonne FY15 FY16 FY17 FY18E FY19E
Sales Volume* 45 48 49 59 69
Net Realisation* 4995 4894 4883 4953 5131
Total Expenditure 4132 3939 3867 3946 3948
Raw material 785 820 822 723 750
Power & Fuel 1046 875 802 922 900
Freight 1190 1225 1195 1203 1200
Employees 269 277 289 288 288
Others 842 741 759 810 810
EBITDA per Tonne 863 952 1015 1007 1183
Source: ICICIdirect.com Research; * Blended (grey + white + clinker)
ICICI Securities Ltd | Retail Equity Research Page 9
Exhibit 19: One year forward EV/EBITDA
10000
30000
50000
70000
90000
110000
130000
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
(|
Crore)
EV 21.5x 18.5x 16.5x 14.5x 10.5x
Source: Company, ICICIdirect.com Research
Exhibit 20: One year forward EV/Tonne
0
5000
10000
15000
20000
25000
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Million $
EV $270 $225 $175 $125 $80
Source: Company, ICICIdirect.com Research
Exhibit 21: Valuation
Sales Growth EPS Growth PE EV/Tonne EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) ($) (x) (%) (%)
FY15 22651.5 12.8 73.4 -6.1 57.3 317 30.7 10.7 10.6
FY16 23708.8 4.7 86.4 17.6 48.7 292 25.6 11.3 11.6
FY17 23891.4 0.8 96.3 11.4 43.9 264 22.9 10.8 12.1
FY18E 29081.0 22.7 90.8 -5.7 46.4 232 21.9 9.6 9.2
FY19E 35166.9 47.2 130.0 43.2 32.4 220 15.6 12.5 12.3
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
Recommendation History vs. Consensus Estimates
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
Jul-17Jun-17Apr-17Mar-17Jan-17Dec-16Oct-16Sep-16Jul-16Jun-16May-16Mar-16Feb-16
(|
)
0.0
20.0
40.0
60.0
80.0
100.0
(%
)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
Sep-13 Announces that the company will acquire 4.8 MT of Gujarat Cement plant of Jaypee Cement. Other than this, ~ 10 MTPA capacity will be commissioned by FY15.
Total cement capacity is expected to reach ~70 MTPA
Jun-14 Company starts including Jaypee Cement operations in quarterly result from Q1FY15
Sep-14 Commissions 1.4 MT cement mill at Karnataka and 25 MW power plant at AP
Dec-14 Board approves acquisition of cement business of Jaiprakash Associates in MP with capacity of 4.9 MT
Aug-15 Commissions a bulk terminal with a capacity of 2 MT in Pune, Maharashtra.
Sep-15 Commissions a cement grinding unit with a capacity of 1.6 MT at Jhajjar, Haryana.
Sep-15 Commissions a cement grinding unit with a capacity of 1.6 MT at Dankuni, West Bengal.
Dec-15 Compat sets aside the Competition Commission of India (CCI) order of alleged cartelisation
Feb-16 The company signs binding MoU with Jaiprakash Associate to acquire 22.4 MT cement capacity
Apr-16 Commissions a cement grinding unit with a capacity of 1.6 MT at Patliputra, Bihar.
Jan-17 The board approves setting up of 3.5 mt integrated plant at Dhar, Madhya Pradesh and is expected to be operational by Q4FY19
Jun-17 Completion of acquisition of Jaypee assets (~21.2 MT)
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Name Last filing date % O/S Position (m) Change (m)
1 Aditya Birla Group 31-Mar-17 60.2 165.3 0.00
2 Life Insurance Corporation of India 31-Mar-17 2.21 6.06 (0.01)
3 Aberdeen Asset Management (Asia) Ltd. 31-May-17 1.57 4.31 (0.10)
4 OppenheimerFunds, Inc. 31-Mar-17 1.45 3.99 0.11
5 Aberdeen Asset Managers Ltd. 31-May-17 1.34 3.68 (0.03)
6 Capital World Investors 31-Mar-17 1.21 3.32 3.32
7 Capital Research Global Investors 31-Mar-17 1.14 3.14 3.02
8 Franklin Advisers, Inc. 30-Apr-17 0.98 2.68 0.00
9 BlackRock Institutional Trust Company, N.A. 30-Jun-17 0.93 2.56 0.02
10 The Vanguard Group, Inc. 31-May-17 0.90 2.47 0.08
(in %) Jun-16 Sep-16 Dec-16 Mar-17 Jun-17
Promoter 62.27 62.26 62.26 62.16 62.14
FII 19.64 20.61 20.83 21.87 21.89
DII 6.80 6.06 6.27 5.51 5.53
Others 11.29 11.07 10.64 10.36 10.44
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor Name Value Shares Investor Name Value Shares
Capital World Investors 204.29 3.32 Lyxor Asset Management -20.22 -0.31
Capital Research Global Investors 185.31 3.02 RBC Investment Management (Asia) Ltd. -8.33 -0.17
Trapti Trading & Investments Pvt. Ltd. 43.41 0.67 FIL Investment Management (Hong Kong) Limited -10.07 -0.15
OppenheimerFunds, Inc. 6.85 0.11 FIL Investment Management (Singapore) Ltd. -7.70 -0.14
The Vanguard Group, Inc. 5.20 0.08 China International Fund Management Co., Ltd. -6.34 -0.13
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
Financial summary
Profit and loss statement | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Total operating Income 23,708.8 23,891.4 29,081.0 35,166.9
Growth (%) 4.7 0.8 21.7 20.9
Raw material cost 3972.8 4024.5 4246.3 5140.3
Power & Fuel cost 4240.8 3926.6 5414.8 6168.4
Freight cost 5934.9 5845.2 7063.3 8224.5
Employees cost 1343.0 1413.4 1691.4 1974.4
Others 3590.7 3712.8 4753.1 5551.5
Total Operating Exp. 19,082.2 18,922.5 23,168.9 27,059.1
EBITDA 4,626.6 4,969.0 5,912.1 8,107.7
Growth (%) 18.2 7.4 19.0 37.1
Depreciation 1,297.0 1,267.9 1,647.6 2,052.9
Interest 511.7 571.4 1,435.5 1,691.4
Other Income 480.7 660.0 769.5 806.6
PBT 3,298.6 3,789.6 3,598.5 5,170.0
Total Tax 928.4 1148.2 1108.2 1602.7
PAT 2,370.2 2,641.4 2,490.3 3,567.3
Growth (%) 17.6 11.4 -5.7 43.2
Adjusted EPS (|) 86.4 96.3 90.8 130.0
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Profit after Tax 2,370.2 2,627.7 2,490.3 3,567.3
Add: Depreciation 1,297.0 1,267.9 1,647.6 2,052.9
(Inc)/dec in Current Assets 224.0 1,016.0 -2,212.5 -149.1
Inc/(dec) in CL and Provisions 70.6 -490.8 2,814.1 1,799.5
CF from operating activities 3,961.8 4,420.7 4,739.5 7,270.7
(Inc)/dec in Investments 495.4 -3,378.3 0.0 0.0
(Inc)/dec in Fixed Assets -2,224.1 -1,429.8 -19,663.0 -3,499.4
Others 435.4 111.2 0.0 0.0
CF from investing activities -1,293.4 -4,696.9 -19,663.0 -3,499.4
Issue/(Buy back) of Equity 0.0 0.1 0.0 0.0
Inc/(dec) in loan funds 252.7 -1,396.3 14,230.0 0.0
Dividend paid & dividend tax -313.8 0.0 -802.6 -866.8
Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0
Others 17.5 702.7 0.0 0.0
CF from financing activities -43.5 -693.5 13,427.4 -866.8
Net Cash flow 2,230.1 108.1 -1,496.1 2,904.4
Opening Cash 200.5 2,430.6 2,538.8 1,042.6
Closing Cash 2,430.6 2,538.8 1,042.6 3,947.0
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Liabilities
Equity Capital 274.4 274.5 274.5 274.5
Reserve and Surplus 20,657.1 23,987.6 25,675.3 28,375.8
Total Shareholders funds 20,931.5 24,262.1 25,949.8 28,650.3
Total Debt 7,667.9 6,271.6 20,501.6 20,501.6
Deferred Tax Liability 3,227.4 3,338.6 3,338.6 3,338.6
Minority Interest / Others 0.0 0.0 0.0 0.0
Total Liabilities 31,826.8 33,872.3 49,790.0 52,490.5
Assets
Gross Block 35,812.1 37,241.9 56,904.9 60,404.9
Less: Acc Depreciation 11,864.4 13,132.3 14,779.9 16,832.8
Net Block 23,947.7 24,109.6 42,125.0 43,572.1
Capital WIP 0.6 0.6 0.6 0.0
Total Fixed Assets 23,948.3 24,110.2 42,125.6 43,572.1
Investments 5,108.1 7,408.7 7,408.7 7,408.7
Inventory 2,426.1 2,225.0 3,431.9 3,408.8
Debtors 1,414.9 1,276.2 2,006.4 1,963.1
Loans and Advances 2,676.0 643.9 810.2 877.9
Other Current Assets 43.5 1,399.5 1,508.6 1,656.4
Cash 2,430.6 2,538.8 1,042.6 3,947.0
Total Current Assets 8,991.1 8,083.3 8,799.7 11,853.2
Creditors 5,094.1 1,713.8 6,572.3 3,447.8
Provisions 1,126.7 4,016.1 1,971.7 6,895.7
Total Current Liabilities 6,220.7 5,729.9 8,544.0 10,343.5
Net Current Assets 2,770.4 2,353.4 255.7 1,509.7
Others Assets 0.0 0.0 0.0 0.0
Application of Funds 31,826.8 33,872.3 49,790.0 52,490.4
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) FY16 FY17 FY18E FY19E
Per share data (|)
EPS 86.4 96.3 90.8 130.0
Cash EPS 133.6 142.0 150.8 204.8
BV 762.8 884.2 945.7 1,044.1
DPS 9.5 0.0 25.0 27.0
Cash Per Share 88.6 92.5 38.0 143.8
Operating Ratios (%)
EBITDA Margin 19.5 20.8 20.3 23.1
PBT / Total Operating income 13.9 15.8 12.4 14.7
PAT Margin 10.0 11.0 8.6 10.1
Inventory days 39.9 35.5 35.5 35.5
Debtor days 20.2 20.6 20.6 20.6
Creditor days 76.5 52.0 52.0 52.0
Return Ratios (%)
RoE 11.3 10.8 9.6 12.5
RoCE 11.6 12.1 9.2 12.3
RoIC 12.2 14.3 9.8 14.0
Valuation Ratios (x)
P/E 48.7 43.9 46.4 32.4
EV / EBITDA 25.6 22.9 21.9 15.6
EV / Net Sales 5.0 4.8 4.5 3.6
Market Cap / Sales 4.9 4.8 4.0 3.3
Price to Book Value 5.5 4.8 4.4 4.0
Solvency Ratios
Debt/EBITDA 1.7 1.3 3.5 2.5
Debt / Equity 0.4 0.3 0.8 0.7
Current Ratio 1.4 1.4 1.0 1.1
Quick Ratio 1.1 1.0 0.9 0.8
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
ICICIdirect.com coverage universe (Cement)
CMP M Cap
(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
ACC* 1750 2050 Buy 32,890 39.0 60.3 68.1 24.1 17.6 15.0 169 147 147 11.1 16.4 16.7 8.5 12.1 12.6
Ambuja Cement* 268 280 Buy 53,215 4.9 7.4 7.1 32.2 23.2 22.0 190 184 185 3.8 8.1 8.1 5.1 7.4 6.9
UltraTech Cem 4,212 4750 Buy 115,440 96.3 90.8 130.0 22.9 21.9 15.6 264 232 220 12.1 9.2 12.3 10.8 9.6 12.5
Shree Cement 18,193 17800 Hold 63,312 385 550 717 27.1 18.6 14.5 389 372 355 12.3 19.1 20.4 17.4 20.2 21.2
Heidelberg Cem 139 145 Buy 3,150 3.4 7.3 8.7 16.1 9.7 8.9 123 118 115 8.2 16.3 16.9 7.9 15.3 16.8
India Cement 209 245 Buy 6,420 5.4 8.5 11.1 10.8 9.8 8.7 101 99 95 7.5 8.3 9.2 3.3 4.9 6.0
JK Cement 977 1265 Buy 6,853 37.1 50.9 59.2 14.1 11.2 9.8 131 126 115 12.6 15.1 16.6 14.5 16.1 16.2
JK Lakshmi Cem 472 525 Hold 5,520 7.0 10.8 19.8 19.5 13.6 10.8 102 92 84 7.5 10.8 13.7 5.9 8.5 13.5
Mangalam Cem 402 425 Buy 1,073 12.9 31.1 37.7 12.1 7.2 6.3 58 53 52 10.9 18.4 19.7 6.8 14.2 14.9
Star Cement 126 115 Hold 5,198 4.1 6.5 6.9 14.3 9.9 9.5 250 244 241 13.8 19.8 19.0 14.0 18.7 17.2
Company
EV/Tonne ($)EV/EBITDA (x)EPS (|) RoCE (%) RoE (%)
*CY15E, CY16E CY17E
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 13
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