Fundamental Stock Analysis Report (31st July 2020)

UltraTech Cement Ltd is the largest manufacturer of grey cement, ready mix concrete (RMC) and white cement in India. With a consolidated capacity* of 116.75 MTPA, it is the third largest cement producer in the world, excluding China.

Installed capacity in India – 111.35 MTPA

Capacity Utilisation – 69%

Realisations per tonne June, 2020 – Rs. 5211

Key Highlights of Q1FY1 Result:

• Ultratech Cement’s Revenue declined 33% over the year-ago period to Rs 7,633 crore. Beats the street estimates of Rs 7,279 crore. Volumes declined 22% to 13.94 MT. This is marginally lower than the 14.2 MT estimated. EBITDA fell 29.7% year-on-year to Rs 2,074.6 crore, compared with the estimated Rs 1,495 crore.

• Domestic sales volume down was 21% to 13.56 million tonnes. Export sales volume flat at 0.38 million tonnes.

• In the available 68 operating days during this quarter, the Company kept a tight control on costs and cash flow, and achieved an effective capacity utilisation of 60% across its network of 54 plants around the country.

• In Q1FY21, the company sold its 92.5% stake in the Chinese subsidiary Krishna Holdings Pte. Ltd, for an enterprise value of US$120mn (Rs9bn). Sales proceeds of Rs7bn (net of taxes and debt) are expected to be received in August 2020. These proceeds will be used to bring down the debt going ahead.

• The 14.6 MTPA cement plants acquired during the previous financial year have been making good progress on integration, achieving an Operating EBITDA margin of 21% as compared to the all India average of 28%. Once the markets open up, the performance will improve further in line with the existing operations.

• The company has reduced net debt by Rs 2,209 crore to Rs 14,651 This has resulted in a Net Debt/EBITDA of 1.44x, which the company intends to bring it down to 1.0x in the near future.

Cost per tonne declined in Q1FY21

• Logistics cost per tonne declined 5% to Rs 1,116.

• Power, Oil & Fuel per tonne fell 11% to Rs 913.

• Raw material cost per tonne down 2% to Rs 477.

Product Portfolio:

• UltraTech Cement

The company has consolidated capacity of 116.75 Million Tonnes Per Annum (MTPA) (Including 2 MTPA under commissioning by September 2020) of grey cement. UltraTech Cement has 23 integrated plants, 1 clinkerisation unit, 26 grinding units, 7 bulk terminals, 1 white cement plant, 2 WallCare putty plants and more than 100+ RMC plants – spanning India, UAE, Bahrain and Sri Lanka. In the white cement segment, UltraTech goes to market under the brand name of Birla White. It has a white cement plant with a capacity of 0.68 MTPA and 2 WallCare putty plants with a combined capacity of 0.85 MTPA.

UltraTech’s products include Ordinary Portland cement, Portland Pozzolana cement and Portland blast-furnace slag cement.

UltraTech added various new value-added products in FY20 including UltraTech Super, UltraTech Premium and UltraTech Weather Plus. Sales of these new products scaled to over 8% of UltraTech’s total sales in FY20. Premium products volume grew by 45% over FY19

• UltraTech Concrete

Cement is an essential material for today’s society as concrete is made from cement, which is an inevitable element for housing, commercial and infrastructure development. Measured on a kilogram per capita basis, concrete is the second most widely consumed material in the world, second only to water.

Performance-based Concrete

Residential – UT Duraplus is specially designed for residential construction so as to provide a long lasting strength to the structure, along with easier and faster construction.

Repairs – UltraTech Rapid is high early strength concrete, for faster repair works without affecting normal placement procedures, enabling the contractors to save time.

Large Projects – UltraTech Litecon used as a filling and levelling material, thereby reducing the dead load on structure and provides ease of placement.

Flooring- UltraTech Decor is a patterned or imprinted concrete available in variety of shades & patterns. It is manufactured by using UV resistant colour hardener, which retains the true shades of colour for long.

Usage-based Concrete – UltraTech FireSafe is specially designed vermiculite firestop concrete which helps in passive fire protection with its carefully chosen mix constituents, which can withstand high elevated temperatures by use of special aggregate and other ingredients.

• UltraTech Building Solutions – UltraTech Building Solutions experts help home builders for products, services and solutions needed for building their homes.
• Other Products –

UltraTech Building Products

Birla White Cement & Putty

Allied Products – Construction chemicals, Tiles, Water Tanks (Sintex), PCV Products

FINANCIAL PERFORMANCE:

Source: Capitaline Corporate Database, EWAL Research

• Ultratech Cement consolidated revenue declined 33% to Rs 7,633.75 crore for the first quarter FY21 ended June 2020, due weaker sales volume amid unprecedented situation arising out of the COVID-19 pandemic.
• The consolidated sales volume (including overseas) declined 21.9% to 13.94 MT, while realization dropped by 14% to Rs 5,476 per tonne.
• EBITDA fell 24% to Rs 2353 crore in Q1 June 2020 from Rs 3084 crore in Q1 June 2019. Profit before tax in Q1 FY21 stood at Rs 1314 crore, down by 31% from Rs 1893 crore in Q1 FY20. Company achieved the highest ever operating EBITDA per tonne of Rs. 1,154/t.
• The Company’s focus on conserving cash continued unabated. The ‘overheads control programme’ initiated by the management cut fixed costs by 21% YoY.
• Normalized profit, which excluded the benefit of reversal of deferred tax liabilities (DTL) of Rs. 2109.46 crore due to change in tax regime stood at Rs 1,131 crore.
• In the available 68 operating days during this quarter, the Company kept a tight control on costs and cash flow, and achieved an effective capacity utilization of 60% across its network of 54 plants around the country.
• Ultratech Cement recorded an exceptional expenditure of Rs 157 crore in Q1FY21 consequent to an order passed by the Supreme Court of India against the company’s claim of capital investment incentive, relating to past periods.
• The Company had applied the lower income tax rates as per new Section 115BAA in the Income Tax Act, 1961 on the deferred tax assets / liabilities to the extent these were expected to be realized or settled in the future period when the Company may be subjected to lower tax rate and accordingly reversed net deferred tax liability of 2,109.46 Crores during the period ended 31/3/2020.

Manufacturing Capacity

Source: Annual Report

FINANCIAL RATIOS:

Source: Capitaline Corporate Database, Company’s presentation

Balance Sheet:

Source: Capitaline Corporate Database, Company’s Annual report

Highlights from Conference Call

• A total of Rs 6,000 crore has been released in last nine months from free cash flows.

• Don’t expect working capital to further shrink.

• Will have to infuse some more working capital to push sales.

• Don’t expect further benefits from power & fuel price correction.

• Cement industry usually witnesses 60% utilization during monsoon quarter.

• Average utilization for June quarter stood at 46%.

• A total of Rs 6,000 crore has been released in last nine months from free cash flows.

• Further deleveraging to take place by sale by Dubai unit and down selling outstanding loan to Binani 3B—The Fibreglass Company. To take a call on Dubai unit after a quarter.

• Capex for FY21 would now increase to Rs. 1500 crore with resumption of economic activities against earlier guidance of RS. 1000 crore

• Overall, the company managed to reduce the cost reduction of Rs. 105/t vs. Q4FY20. As a result, the company achieved EBITDA/t of RS. 900/t for the quarter.

Outlook

UltraTech Cement reported a better than estimated Q1FY21 performance. Cement demand improved and remained increasing since lifting of lockdown. Rural demand in FY21E could be robust on the back of expectations of normal monsoon and pick-up in individual housing building (IHB). The company is targeting a reduction of fixed overheads by 10% leading to annual saving of Rs. 500 crore. Currently, plants are running at 60-65% utilisation on companywide capacity. UltraTech’s key focus will continue to remain on debt deleveraging. All proceeds from divestment of non-core assets will help accelerate this journey. We value Ultratech Cement at 13x FY22 EV/EBITDA considering further debt reduction. Therefore we initiate buy at CMP for the target price of Rs.4900.

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

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