21 January 2013
3QFY13 Results Update |
Sector: Cement
UltraTech Cement
BSE Sensex
S&P CNX
20,039
6,064
Bloomberg
UTCEM IN
Equity Shares (m)
2,457.3
M.Cap. (INR b)/(USD b)
523/9.7
52-Week Range (INR) 2,075/1,094
1,6,12 Rel.Perf.(%)
-8/5/40
CMP: INR1,910
TP: INR2,338
Buy
Financials & Valuation (INR b)
Y/E March
2013E 2014E 2015E
242.4
61.1
35.4
129.2
21.6
673.2
20.9
25.5
13.5
14.8
2.8
8.3
156
278.1
68.5
40.0
146.0
13.0
795.9
19.9
25.2
15.9
13.1
2.4
7.3
153
Sales
209.1
EBITDA
49.0
NP
29.1
Adj EPS (INR) 106.3
EPS Gr. (%)
21.5
BV/Sh. (INR) 561.4
RoE (%)
20.6
RoCE (%)
24.2
Payout (%)
13.1
Valuation
P/E (x)
18.0
P/BV (x)
3.4
EV/EBITDA (x) 10.0
EV/Ton (USD) 181
UltraTech Cement's 3QFY13 performance is above estimates, with EBITDA/ton of
INR1,016 (v/s est INR884/ton; -INR50/ton QoQ), driven by higher-than-estimated
realizations and lower cost push, despite lower volumes. Further, higher other
income boosted PAT to INR6b (v/s est INR5b) - a growth of 5% YoY (-9% QoQ).
Volumes were at 9.94mt (-1.7% YoY, +7% QoQ v/s est 10.22mt) and blended
realizations (incl RMC & white cement) at INR4,887/ton (-3% QoQ v/s est
INR4,898/ton). Grey cement realizations is estimated to decline ~3.5% QoQ
(+8.5% YoY) to INR4,075/ton (v/s est INR4,013/ton).
Sales stood at INR48.6b (v/s est INR50b) and PAT at INR6b (v/s est INR5b).
EBITDA was at INR10.2b (v/s est INR9.2b), translating into EBITDA margins of
21.1% (-30bp QoQ, +20bp YoY) and EBITDA/ton of INR1,016 (v/s est INR884/
ton), driven by higher realizations and lower cost push. Cost was lower QoQ
by 3%, driven by lower energy cost by ~6% QoQ and operating leverge.
This coupled with higher other income and lower interest (due to netting-off
of interest subsidy from this quarter) boosted PAT.
Outlook:
"Backed by some positive economic sentiments, the long term
demand is likely to see an 8% growth, with housing, infrastructure and allied
spending being the key value drivers. However, the surplus scenario is
expected to continue over the next three years. Input costs are likely to
increase in line with general inflation, with margins remaining range bound."
Valuation & view:
We raise FY13E EPS estimates by 6% to INR106, to factor the-
higher-than estimated cement realizations, lower volumes and lower cost.
However, we maintain FY14E/FY15E EPS at INR129/INR146 as a cut in volume
estimates offset upgrades due to higher realizations and lower cost. The stock
trades at 8.3/7.3x FY14E/FY15E EV/EBITDA and USD153/ton. Maintain
Buy
with
target price of INR2,338 (9x FY15E EV/EBITDA).
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
Lower drop in grey cement realizations, albeit volumes remain flat
Cement volumes de-grew just by 1.7% YoY (+7% QoQ) to 9.94mt (v/s est 10.22mt).
RMC volumes de-grew ~2.5% YoY (-4% QoQ) to ~12 lac cu mtr. White Cement (incl
Wall care putty) volumes grew 5% YoY (+10% QoQ) to 262,000 tons.
Blended realization's (incl RMC & white cement) at INR4,887/ton (-3% QoQ v/s est
INR4,898/ton). Grey cement realizations is estimated to decline ~3.5% QoQ (+8.5%
YoY) to INR4,075/ton (v/s est INR4,013/ton), with domestic realizations estimated
to have declined by 4% QoQ.
Net sales grew by 6% YoY (+3% QoQ) to NR48.6b (v/s est INR50b).
Trend in Grey Cement business
Trend in RMC business
Trend in White Cement business
Source: Company, MOSL
Cost savings on energy, operating leverage dilute impact of QoQ realization
decline
EBITDA grew by 7% YoY (+2% QoQ) to INR10.2b (v/s est INR9.2b), translating into
EBITDA margins of 21.1% (-310bp QoQ, +20bp YoY; v/s est 18.3%) and EBITDA/ton
of INR1,016 (v/s est INR884/ton v/s INR1,067/ton in 2QFY13).
Cost was lower QoQ by 3%, driven by lower energy cost by ~6% QoQ and operating
leverge. Energy cost declined ~INR70/ton QoQ driven optimization of fuel mix (in
favor of pet-coke with 3-4pp increase in share) and benefit of lower imported
coal prices (at USD100/ton).
This coupled with higher other income and lower interest (due to netting-off of
interest subsidy from this quarter) boosted PAT to INR6b (v/s est INR5b) - a growth
of 5.5% YoY (+9% QoQ).
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.
21 January 2013
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
3QFY13
4,887
658
1,073
242
1,050
777
3,800
1,016
3QFY12
4,450
615
1,096
216
919
672
3,518
932
YoY (%)
9.8
7.0
-2.0
12.0
14.3
15.7
8.0
9.0
1QFY13
QoQ (%)
5,059
-3.4
692
-4.9
1,140
-5.8
254
-4.7
989
6.2
846
-8.2
3,921
-3.1
1,067
-4.8
Source: Company, MOSL
Volume outlook positive, reflecting in significant capex plans by INR120b
Outlook give by the company: "Backed by some positive economic sentiments,
the long term demand is likely to see an 8% growth, with housing, infrastructure
and allied spending being the key value drivers. However, the surplus scenario is
expected to continue over the next three years. Input costs are likely to increase
in line with general inflation with margins remaining range bound."
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
21 January 2013
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
Source: Company, MOSL
3

UltraTech Cement
Valuation & view
We are upgrading our FY13 EPS estimates by 6% to INR106, to factor in for higher
than estimated cement realizations, lower volumes and lower cost. However, we
maintain our FY14/FY15 EPS at INR129/INR146 as cut in volume estimates off-set
upgrades on account on of higher realizations and lower cost. We are factoring in
for 8%/10% grey cement volume growth, with realization improvement of INR15/
12 per bag in FY14/FY15, translating into EBITDA/ton of INR1,335/1,356.
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.
The stock trades at 8.3/7.3x FY14/FY15 EV/EBITDA and US$153/ton. Maintain Buy
with target price of INR2,338 (9x FY15E EV/EBITDA).
UltraTech Cement: Recent outperformance has resulted in re-rating of the stock
21 January 2013
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.
result in volatile earnings.
Being largest exporter of cement, UltraTech's
earnings are sensitive to export realizations.
Recent development
Coal block allocated jointly with Electrotherm (India)
at Bhaskarpara, Chattisgarh has been de-allocated
by the Ministry of Coal. The Company has filed a writ
petition against the order and has obtained a stay.
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.
Allied businesses of white cement and RMC lend
stability to overall performance.
Valuation and view
The stock trades at 8.3/7.3x FY14/FY15 EV/EBITDA and
US$153/ton.
Maintain Buy with target price of INR2,338 (9x FY15E
EV/EBITDA).
Sector view
We believe we have already witnessed bottom-of-
the-cycle utilization & profitability, and it should
gradually improve hereon given sustainable demand
drivers.
Structural increase in cost base (both capex and opex)
would necessitate higher cement prices.
Revival in cement demand would be key catalyst for
the stock performance.
Key investment risks
High operating leverage, especially post
commissioning of new capacities in 1QFY14, could
UltraTech
18.0
14.8
3.4
2.8
181
156
10.0
8.3
ACC
20.4
16.7
3.4
3.0
132
125
10.7
8.6
ACEM
18.7
16.3
3.5
3.1
179
172
10.5
9.0
Comparative valuations
P/E (x)
P/BV (x)
EV/Ton ($)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
106.3
129.2
Consensus
Forecast
103.6
121.4
Variation
(%)
2.5
6.4
FY13
FY14
Target Price and Recommendation
Current
Price (INR)
1,910
Target
Price (INR)
2,338
Upside
(%)
22.4
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Sep-12
Promoter
Domestic Inst
Foreign
Others
21 January 2013
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
5

UltraTech Cement
Financials and Valuations
21 January 2013
6

UltraTech Cement
N O T E S
21 January 2013
7

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UltraTech Cement
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