20 October 2012
2QFY13 Results Update | Sector: Cement
UltraTech Cement
BSE SENSEX
S&P CNX
18,682
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,684
UTCEM IN
274.0
2,075/1,057
11/30/70
550.7
10.2
CMP: INR2,010
TP: INR2,050
Buy
* Merger of Grasim's cement business assumed w.e.f 1 July 2010
UltraTech Cement's 2QFY13 performance is above estimates with EBITDA/ton of INR1,069 (v/s est INR1,000/ton),
driven by higher than estimated realizations, benefit of which was diluted by higher than estimated cost-push.
However, lower other income restricted PAT to INR5.5b (v/s est INR5.49b) - a growth of 97% YoY (-29% QoQ).
Volumes at 9.29mt (+0.7% YoY, -10% QoQ v/s est 9.35mt). Blended realization's (incl RMC & white cement) at
INR5,059/ton (+3% QoQ v/s est INR4,823/ton). Grey cement realizations is estimated to improve ~2% QoQ
(~20% YoY) to INR4,203/ton (v/s est INR3,984/ton).
Sales at INR47b (v/s est INR45b) and PAT at INR5.5b (v/s est INR5.49b).
EBITDA at INR10b (v/s est INR9.5b), translating into EBITDA margins of 21.4% (-410bp QoQ, +650bp YoY; v/s est
21%) and EBITDA/ton of INR1,069 (v/s est INR1,000/ton), driven by higher realizations. However, cost push in
form of energy cost (+4.7% QoQ) and other expenses (+28% QoQ) due to maintenance related cost diluted
benefit of higher realizations.
Its 1.2mt grinding unit at Gujarat plant is expected to start operations in 3QFY13, which will enable it to grind
excess clinker, thereby improving mix in favor of cement.
Outlook:
"The cement industry is likely to grow over 8% linked to the Government's focus on infrastructure
development. The surplus scenario is likely to continue for the next three years."
Valuation and view:
We are upgrading our FY13/14 EPS estimates by 7%/8% to INR116.8/132.6, to factor in for
higher than estimated cement realizations, lower volumes and higher cost. The stock trades at 15.2x FY14E EPS,
8.8x EV/EBITDA and USD170/ton. Maintain
Buy
with target price of INR2,050 (9x FY14E EV/EBITDA).
E
Jinesh Gandhi
(Jinesh@MotilalOswal.com) + 91 22 3982 5416
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +9122 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.
1

UltraTech Cement
Higher grey cement realizations, strong auxiliary business performance
drives revenue growth
Cement volumes grew just by 0.7% YoY (-10% QoQ) to 9.29mt (v/s est 9.35mt).
RMC volumes grew 10% YoY (-9% QoQ) to ~12.5 lac cu mtr. White Cement (incl Wall
care putty) volumes grew 9% YoY (+6% QoQ) to 239,000 tons.
Blended realization's (incl RMC & white cement) at INR5,059/ton (+3% QoQ v/s
est INR4,823/ton). Grey cement (incl clinker) realizations is estimated to improve
~2% QoQ (~20% YoY) to INR4,203/ton (v/s est INR3,984/ton), with domestic
realizations estimated to have improved by 1% QoQ to ~INR4,400/ton.
Net sales grew by 20% YoY (-7% QoQ) to NR47b (v/s est INR45b).
Trend in Grey Cement business
Trend in RMC business
Trend in White Cement business
Source: Company, MOSL
Benefit of higher realizations diluted by higher cost
EBITDA grew by 73% YoY (-22% QoQ) to INR10b (v/s est INR9.5b), translating into
EBITDA margins of 21.4% (-410bp QoQ, +650bp YoY; v/s est 21%) and EBITDA/ton
of INR1,069 (v/s est INR1,000/ton), driven by higher realizations.
However, cost push in form of energy cost (+4.7% QoQ) due to increase in domestic
open market prices and other expenses (+28% QoQ) due to maintenance related
cost diluted benefit of higher realizations.
Lower other income restricted PAT to INR5.5b (v/s est INR5.49b) - a growth of 97%
YoY (-29% QoQ).
The company has indicated that it doesn't see any meaningful benefit from
softening of imported coal prices, as weaker INR has diluted benefit of it.
It hasn't provided for CCI's penalty of INR11.8b for alleged cartelization, as based
on the legal opinion it believes that it has a good case and will appeal before the
Competition Appellate Tribunal.
20 October 2012
2

UltraTech Cement
Trend in EBITDA
Source: Company, MOSL
Trend in key operating parameters (incl RMC & white cement business)
INR/Ton
Realization
RM Cost
Power & Fuel
Staff Cost
Freight & Forwarding
Other Expenditure
Total Expenditure
EBITDA
2QFY13
5,059
692
1,140
254
986
847
3,919
1,069
2QFY12
4,177
719
1,025
220
901
688
3,553
624
YoY (%)
21.1
-3.7
11.2
15.7
9.4
23.0
10.3
71.4
1QFY13
4,910
711
1,038
214
990
659
3,613
1,235
QoQ (%)
3.0
-2.7
9.8
18.9
-0.4
28.4
8.5
-13.4
Outlook positive, reflecting in increased capex plans by INR10b to INR120b
Outlook giveN by the company:
"The cement industry is likely to grow over 8%
linked to the Government's focus on infrastructure development. The surplus
scenario is likely to continue for the next three years."
It is investing ~INR119.4b investing in ~10.2mt capacities, CPP, marketing and
logistic infrastructure, modernization/ up-gradation and in RMC business.
It is setting-up 9.2MT capacity at Chhattisgarh and Karnataka, alongwith with split
grinding units, split grinding units and packaging terminals. This capacity would
be operational in FY14.
This capex would be funded through mix of internal accruals and debt. While on
standalone basis, it has net cash of INR1.65b, on consolidated basis it has net debt
of INR17.9b (as of Mar-12).
UltraTech's Capex schedule
Brownfield - Raipur
Brownfield - K'taka
Grinding - Gujarat
Thermal CPP
WHRS CPP
Logistic Infrastructure
Bricks & RMC
Modernization & Upgradation
Total
Capacity
4.8MT
4.4MT
1MT
25MW
45MW
Capex (INR b)
58.9
1.6
6.8
7.6
4.5
40.1
119.4
20 October 2012
3

UltraTech Cement
Upgrading estimates by 7-8%
We are upgrading our FY13/14 EPS estimates by 7%/8% to INR116.8/132.6, to factor
in for higher than estimated cement realizations, lower volumes and higher cost.
Our estimates factors in for volume growth of 4.2%/9.4% in FY13/FY14 and price
increase of INR28/bag in FY13E and INR10/bag in FY14 (~INR15/bag over 2QFY13
realizations) respectively.
UltraTech: Revised forecast (INR b)
Rev
217.2
53.4
32.0
116.8
FY13E
Old
210.6
49.0
30.0
109.5
Chg (%)
3.2
8.9
6.7
6.7
Rev
248.8
63.0
36.3
132.6
FY14E
Old
244.7
56.8
33.6
122.6
Chg (%)
1.7
10.9
8.2
8.2
Net Sales
EBITDA
Net Profit
EPS (INR)
Valuation and view
We believe that operating performance of the cement industry has already
bottomed out. Recovery in demand, lower capacity addition and sustenance of
higher prices would be the key drivers of sustainable improvement in operating
performance.
UTCEM with its 60MT capacity (by 1QFY14) and pan-India presence is the best
proxy on the Indian cement industry.
UTCEM has been the best performing large-cap cement stock stock, with
outperformance of ~30%/70% over last 6/12 months v/s Sensex.
We expect upgrade cycle to continue driven by strong realizations. Our EPS
estimates are ~18% higher consensus estimates for FY13/FY14.
The stock trades at 15.2x FY13E EPS, 8.8x EV/EBITDA and USD170/ton. Maintain
Buy
with target price of INR2,050 (9x FY14E EV/EBITDA).
UltraTech Cement: Recent outperformance has resulted in re-rating of the stock
20 October 2012
4

UltraTech Cement
UltraTech Cement: an investment profile
Company description
UltraTech Cement, the erstwhile cement division of L&T
Ltd, is a subsidiary of Grasim, a part of the Aditya Birla
Group. Post merger of Grasim's cement business, it is
the largest cement company in India with a total cement
capacity of 60mt (by 1QFY14) with a pan-India presence.
It is the largest exporters of cement and clinker from
India. Post merger, it would be the largest cement
company in India and 10th largest in the world.
Being largest exporter of cement, UltraTech's
earnings are sensitive to export realizations.
Recent development
It has acquired 100% stake of Gotak Limestone Khanij
Udyog Pvt Ltd, resulting in it becoming UltraTech's
subsidiary w.e.f 23/07/2012.
Valuation and view
The stock trades at 15.2x FY13E EPS, 8.8x EV/EBITDA
and USD170/ton.
Maintain
Buy
with target price of INR2,050 (9x FY14E
EV/EBITDA).
Key investment argument
The largest cement company with pan-India
presence.
Potential to increase throughput without incurring
major capex by increasing utilization and blending,
along with locational advantage, gives it the
flexibility to either export or sell in the domestic
market.
Significant potential to increase throughput by
increasing blending.
Sector view
We believe we have already witnessed bottom-of-
the-cycle utilization & profitability, and it should
gradually improve hereon given sustainable demand
drivers.
Structural increase in cost base would necessitate
higher cement prices.
Revival in cement demand would be key catalyst for
the stock performance.
Key investment risks
High operating leverage could result in volatile
earnings.
Comparative valuations
P/E (x)
P/BV (x)
EV/Ton (USD)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
UltraTech
17.2
15.2
3.5
2.9
208
170
10.6
8.8
ACC
18.7
16.0
3.4
3.1
140
138
10.1
8.8
ACEM
17.5
15.6
3.5
3.1
190
185
10.2
8.9
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
116.8
132.6
Consensus
Forecast
99.8
111.1
Variation
(%)
17.1
19.3
FY13
FY14
Target Price and Recommendation
Current
Price (INR)
2,010
Target
Price (INR)
2,050
Upside
(%)
2
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Sep-12
Promoter
Domestic Inst
Foreign
Others
62.8
4.3
23.0
9.9
Jun-12
63.3
4.8
22.1
9.8
Sep-11
63.4
7.2
17.9
11.6
20 October 2012
5

UltraTech Cement
Financials and Valuations
20 October 2012
6

UltraTech Cement
N O T E S
20 October 2012
7

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UltraTech Cement
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