12 Annual Global Investor Conference
BSE Sensex
28,926
S&P CNX
8,918
th
UltraTech Cement
TP: INR4,675 (+14%)
Mr KK Maheshwari
Managing Director
UltraTech Cement
Company update | Sector: Cement
CMP: INR4,089
Buy
CEO TRACK
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
12M Avg Val (INR M)
Free float (%)
UTCEM IN
274.4
4117/2581
4/19/27
1,122
16.9
922
37.7
Industry dynamics turning favorable
Takeaways from CEO track
We hosted Mr KK Maheshwari, MD of UltraTech Cement as part of CEO Track at our
conference. Here are the key takeaways from his presentation.
Cement demand at the cusp of a new cycle:
Over FY16-21, Mr Maheshwari expects
cement demand in India to closely track the growth trajectory in China in the 1990s.
Cement demand in China had increased multi-fold in the 1990s, led by infrastructure
development. In India too, the growth in cement demand would be initially led by
infrastructure – development of roads, railways, ports, power projects, and
irrigation facilities. Demand growth from the housing segment would be gradual and
back-ended.
Share of infrastructure in overall demand to increase:
Led by the current
government’s thrust towards faster implementation of infrastructure projects,
cement demand from the infrastructure segment is likely to grow at 1.5x the GDP
growth over FY16-21, implying a demand CAGR of 13%. This would generate
incremental demand of 53m tons over the next five years. Within the infrastructure
segment, demand growth would be led by (a) roads – investment of over INR2t by
the National Highway Authority of India (NHAI), and (b) irrigation projects – NABARD
has recently agreed to give funding to both state and central governments for
stalled projects worth INR2.5t. Cement demand from the commercial segment
would grow at a CAGR of 7.7% over FY16-21, as India is progressing towards being
one of the world’s largest service providers.
Housing demand to see gradual improvement:
Rural demand continues to be
impacted by muted growth in rural wages. However, the government’s focus on
providing housing as a basic need in economically backward regions should drive 5%
CAGR in demand from the housing segment over FY16-21, generating incremental
demand of 48m tons over the period. Government initiatives like low cost housing
projects (planned investments of INR2t) and smart cities would propel demand from
rural housing. Also, India’s relatively low urbanization rate of 30-35% leaves plenty
of scope for increase in urbanization; hence, the housing segment should see
sustained growth.
Financial Snapshot (INR b)
Y/E Mar
2016 2017E 2018E
Sales
238.4 262.9 309.3
EBITDA
43.5
54.3
76.9
NP
21.7
29.6
45.4
Adj EPS (INR)
79.3 108.0 165.3
EPS Gr. (%)
7.9
36.2
53.1
BV/Sh (INR)
755.8 852.2 1,000.0
RoE (%)
11.0
13.4
17.9
RoCE (%)
9.3
11.5
15.2
Payout (%)
13.9
10.8
10.5
Valuations
P/E (x)
51.6
37.9
24.7
P/BV (x)
5.4
4.8
4.1
EV/EBITDA (x)
25.5
19.9
13.5
EV/Ton (USD)
247
241
230
Relative to Index
Abhishek Ghosh
(Abhishek.Ghosh@MotilalOswal.com); +91 22
3982 5436
Aashumi Mehta
(Aashumi.Mehta@motilalOswal.com@MotilalOswal.com); +9122 30102397
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
September 2016
Investors are advised to refer through important disclosures made at the last page of the Research Report.
1

UltraTech Cement
12 Annual Global Investor Conference
th
Realization growth could be muted:
Mr Maheshwari believes that incremental
demand from the infrastructure segment would outpace that from the housing
segment over the next 4-5 years. This implies muted realization growth for the
industry, given that pricing for infrastructure-related projects is 7-10% lower.
However, we believe it is not likely to have any meaningful impact on profitability
due to the balancing impact of positive operating leverage, led by higher volumes.
Besides, associated costs like dealer margins are absent in case of sales through the
institutional channel for infrastructure projects.
Supply pressure waning:
The Indian cement industry is likely to see meaningful
slowdown in capacity addition for the next 4-5 years. Progressively, greenfield
expansions are getting difficult, as the process of land acquisition is incrementally
getting tougher. Capacity addition in the industry is likely to grow at a CAGR of 2%
over FY16-21, which would result in incremental demand outpacing incremental
supply addition, which has not been the case over FY12-16. This would reduce
excess capacity from the current 139m tons to ~92m tons by FY21, resulting in
utilization rising from 72% to 79%.
Medium-term demand looks promising:
Demand from rural housing has been
sluggish for the last couple of years due to two successive years of weak monsoon.
However, demand in 2HFY17 is expected to improve, led by (a) better monsoon
resulting in higher sowing (+6.5% YoY), and (b) implementation of the 7
th
Pay
Commission. In 2008, when the Pay Commission was implemented, cement demand
grew at 10% for the next two years.
Three-pronged strategy for UltraTech to be competitive:
To maintain its leadership
position without compromising on profitability, UltraTech follows a three-pronged
strategy – (1) agility, (2) customer centricity, and (3) efficiency. Most of its plants are
multi-fuel and can change the source of feed depending on economics at any given
point. To reduce freight cost and raise efficiency, UltraTech has also (a)
commissioned split grinding units in the last 12-18 months, and (b) set up bulk
terminals.
September 2016
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UltraTech Cement
12 Annual Global Investor Conference
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Story in charts
Exhibit 1: Global positioning to improve significantly post-acquisition of JPA
Top 10 cement companes by
capacity globally
Buzzi , 45
Votorantim,
54
Itla
cementi, 65
UTCEM*,91
Cemex, 94
Heidelberg,
128
Jidong , 100
JKLC, 9.2
JKCE, 10.5
ICEM, 15.5
BCORP, 16
Ramco, 16
Chettinad ,
16.8
Dalmia, 24
SRCM, 25
Hol-Laf, 61.3
UTCEM, 91
Source: Industry, MOSL
Top 10 cement companies in
India by capacity
Lafarge-
Holcim, 390
CNBM, 400
Anhui
Conch, 264
Exhibit 2: Market mix balance to enrich further (%)
North
8
17
24
29
21
Current capacity
break-up
South
West
19
13
18
28
22
Capacity break up
post JP deal
East
Central
12
17
30
22
18
Current volume
mix(%)
Source: Company, MOSL
Exhibit 3: Utilization (%) levers to aid growth performance
80%
73%
75%
80%
69%
70%
North & Central
East
West & South
Source: Company, MOSL
Exhibit 4: Significantly uplifted profitability, led by cost
measures and value added products (INR/ton)
Range of EBITDA/ton for MOSL universe
1,600
1,250
900
550
200
UTCEM
Exhibit 5: Ongoing operating cash flow offers strong self-
sustaining growth capex for organic expansion (INR b)
OCF
Maintenance capex
Growth capex
44
31
47
8
FY16
49
8
FY17E
32
62
30
35
46
22
6
7
FY15E
8
FY18E
FY14
Source: Company, MOSL
Source: Company, MOSL
September 2016
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UltraTech Cement
12 Annual Global Investor Conference
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Investment thesis
UltraTech offers the most predicable and profitable growth in Indian Cement
due to (a) pan-India presence, with 17-18% market share, (b) strong utilization
headroom from recent expansion, and (c) more stable portability amidst the
recent weakness. This is reflected in its top-quartile growth and profitability
over the past 2-3 years.
It delivers strong margins (18-20%), with the lowest variance, led by (a)
consistent efforts in cost saving (rise in pet coke/AFR/WHRS mix, sea route
transport, and operating efficiency), and (b) healthy profitability of white
cement. It has witnessed the strongest savings in direct cost in the past 12
months, with further benefits from logistics measures ahead (new grinding
facilities in the North, West and East; bulk terminus). In the last two years, it has
added 7.4m tons of capacity. 65% of the new capacity is split grinding units
added in the last four quarters. These are currently operating at sub-50%
utilization, and as utilizations improve, freight costs would decline considerably.
While sub-normal profitability, low utilization and fresh debt in JPA assets would
lead to EPS dilution in the initial years, the transaction would strengthen
UltraTech’s competitive position through complementary market reach,
synergies, and sufficient limestone reserves. Dilution in balance sheet strength
due to the transaction would be transitory and normalize in 2-3 years, in our
view.
Valuations:
Industry dynamics are turning favorable due to: 1) demand
improvement, 2) slowdown in capacity addition and 3) high consolidation. This,
coupled with strong utilization levels (above 80% ex-south), is likely to drive
strong pricing improvement. UTCL plans to increase capacity by 31% over the
coming 12 months via JPA acquisition and entering the consolidated Satna
cluster. Thus, over FY16-FY18E, we expect UTCL’s (ex-JPA) RoE to expand
strongly by 690bp to 18% and EBITDA to grow at a CAGR of 33%. We see strong
possibility for earnings upgrade led by higher-than-estimated pricing
improvement, especially in north and west regions where it has significant
presence. The stock trades at 13.5x FY18 EV/EBITDA and USD230/ton. Maintain
Buy
with a TP of INR4,675 (14.5x FY18 EV/EBITDA).
September 2016
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UltraTech Cement
12 Annual Global Investor Conference
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Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT
EO Expense/(Income)
PBT after EO expense
Tax
Tax Rate (%)
Reported PAT
Adj PAT
Change (%)
Margin (%)
2011
132,062
87.3
25,597
19.4
7,657
17,939
2,725
2,619
17,833
0
17,833
3,791
21.3
14,042
14,042
28.4
10.6
2012
181,664
37.6
40,039
22.0
9,026
31,013
2,239
4,568
33,343
-666
34,009
9,467
27.8
24,542
24,062
71.4
13.2
2013
199,991
10.1
44,946
22.5
9,454
35,492
2,097
4,620
38,015
0
38,015
11,700
30.8
26,315
26,315
9.4
13.2
2014
200,779
0.4
36,160
18.0
10,523
25,637
3,192
5,310
27,755
-956
28,711
7,266
25.3
21,445
20,731
-21.2
10.3
2015
226,565
12.8
39,153
17.3
11,331
27,822
5,475
6,515
28,863
0
28,863
8,715
30.2
20,147
20,147
-2.8
8.9
2016
238,410
5.2
43,498
18.2
12,890
30,608
5,053
5,015
30,570
0
30,570
8,823
28.9
21,747
21,747
7.9
9.1
2017E
10.3
54,312
20.7
40,747
7,500
42,318
0
42,318
12,696
30.0
29,623
29,623
36.2
(INR Million)
2018E
309,330
262,941
17.6
76,880
24.9
63,125
7,400
64,796
0
64,796
19,439
30.0
45,357
45,357
53.1
14.7
13,755
5,729
13,565
5,929
11.3
Balance Sheet
Y/E March
Equity Share Capital
Reserves
Net Worth
Deferred liabilities
Loans
Capital Employed
Goodwill
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Bal
Others
Curr. Liability & Prov.
Creditors
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
2011
2,740
103,920
106,660
17301
26,373
150,334
179,423
65,420
114,003
6,831
37,303
41,809
19,565
6,023
1,448
14,773
49,612
43,877
5,735
-7,803
150,334
2012
2,741
125,858
128,598
17378
41,529
187,505
190,138
73,797
116,342
18,965
37,888
56,257
20,359
7,660
1,896
26,342
41,947
33,740
8,207
14,310
187,505
2013
2,742
149,606
152,348
19059
54,085
225,493
213,822
82,599
131,224
35,054
51,087
56,723
23,505
10,172
1,427
21,619
48,595
37,903
10,692
8,128
225,493
2014
2,742
168,233
170,975
22958
51,993
245,927
250,778
92,059
158,718
20,384
53,917
64,489
23,684
12,810
2,775
25,220
51,614
41,884
9,730
12,875
245,927
2015
2,744
185,833
188,576
27920
74,142
290,638
318,741
109,267
209,475
20,737
52,088
69,850
27,514
12,032
2,139
28,165
61,511
48,481
13,030
8,339
2016
2,744
204,617
207,360
32274
76,607
316,241
354,478
122,157
224,483
15,000
51,081
87,956
24,261
14,149
22,351
27,195
62,280
51,013
11,267
25,677
290,638
316,241
2017E
2,744
231,051
233,795
34601
71,607
340,003
0
359,478
135,722
223,756
25,000
29,500
126,582
27,375
14,408
55,984
28,815
64,835
54,029
10,806
61,747
340,003
2018E
2,744
271,627
274,370
38165
71,607
384,142
0
364,478
149,477
215,001
40,000
29,500
166,592
32,204
15,255
87,776
31,357
66,951
55,934
11,017
99,641
384,142
September 2016
5

UltraTech Cement
12 Annual Global Investor Conference
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Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
EV/Ton (Cap-USD)
Dividend Yield (%)
Return Ratios (%)
RoIC
RoE
RoCE
Working Capital Ratios
Fixed Asset Turnover (x)
Debtor (Days)
Creditor (Days)
Inventory (Days)
Leverage Ratio
Current Ratio
Interest Cover Ratio
Debt/Equity
2011
51.2
79.2
389.2
6.0
13.6
2012
87.8
120.7
469.2
8.0
10.4
2013
96.0
130.5
556
9.0
11.0
2014
75.6
114.0
623
9.0
13.5
2015
73.4
114.7
687
9.0
14.2
2016
79.3
126.2
756
9.5
13.9
2017E
108.0
157.4
852
10.0
10.8
2018E
165.3
215.5
1,000
15.0
10.5
55.7
35.6
5.9
5
28.6
267
0.2
51.6
32.4
5.4
5
25.5
247
0.2
37.9
26.0
4.8
4.1
19.9
241
0.2
24.7
19.0
4.1
3.3
13.5
230
0.4
16.2
18.4
16.6
18.8
20.5
16.9
18.1
18.7
14.7
12.3
12.8
10.8
9.8
11.2
9.9
9.4
11.0
9.3
12.0
13.4
11.5
18.6
17.9
15.2
1.4
17
121
54
1.0
15
68
41
1.1
19
69
43
1.2
23
76
43
1.4
19
78
44
1.5
22
78
37
1.4
20
75
38
1.2
18
66
38
0.8
6.6
0.2
1.3
13.9
0.3
1.2
16.9
0.4
1.2
8.0
0.3
1.1
5.1
0.4
1.4
6.1
0.4
2.0
6.9
0.3
2.5
11.0
0.3
Cash Flow Statement
Y/E March
Op. Profit/(Loss) before Tax
Interest/Dividends Recd.
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO expense
CF from Operating incl EO Exp.
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from investments
Issue of Shares
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2011
25,635
1,223
-5,190
-925
20,743
0
20,743
-12,169
8,574
-4,321
-16,489
14
-664
-2,930
-728
-4,309
-55
1,503
1,448
2012
41,304
478
-7,340
158
34,600
22
34,578
-31,575
3,003
2,159
-29,416
16
83
-2,907
-1,905
-4,714
448
1,448
1,896
2013
46,244
566
-7,165
-3,887
35,759
32
35,727
-32,676
3,051
-10,349
-43,025
79
12,557
-3,268
-2,539
6,829
-469
1,896
1,427
2014
2015
2016
36,160
5,310
-3,367
-3,399
34,704
-956
35,660
-23,348
12,312
-2,830
-26,178
69
-2,092
-3,192
-2,887
-8,102
1,380
1,427
2,775
39,153
6,515
-3,753
3,900
45,815
0
45,815
-62,440
-16,625
1,829
-60,611
323
22,149
-5,475
-2,869
14,128
-668
2,775
2,139
43,498
5,015
-4,470
2,875
46,918
0
46,918
-22,162
24,757
1,006
-21,155
66
2,465
-5,053
-3,029
-5,551
20,212
2,139
22,351
2017E
54,312
7,500
-10,368
-2,438
49,006
0
49,006
-22,839
26,168
21,581
-1,257
0
-5,000
-5,929
-3,188
-14,117
33,633
22,351
55,984
(INR Million)
2018E
76,880
7,400
-15,875
-6,102
62,303
0
62,303
-20,000
42,303
0
-20,000
0
0
-5,729
-4,782
-10,511
31,793
55,984
87,776
September 2016
6

UltraTech Cement
12 Annual Global Investor Conference
th
Our recent reports on Ultratech Cement
Our recent reports on Cement sector
Our recent reports on other Cement companies
September 2016
7

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UltraTech Cement
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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Kadambari Balachandran
kadambari.balachandran@motilaloswal.com
(+65) 68189233 / 65249115
September 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
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