6 February 2020
TP: INR5,440 (+22%)
Demand outlook improving; Deleveraging key focus
We met UltraTech Cement’s (UTCEM) CFO, Mr. Atul Daga for an update on the
company’s business and growth plans. Key insights highlighted from the meeting:
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Financials Snapshot (INR b)
EBITDA Margin (%)
Adj. EPS (INR)
EPS Gr. (%)
Div. Yield (%)
FCF Yield (%)
1289.3 / 18.1
4904 / 3372
Demand recovering, expect 6-7% volume growth in FY21
Deleveraging remains the key focus
Focus remains on deleveraging with limited capex plans. Strong FCF in
Demand has picked up since Dec’19, which gives hope of volume growth
recovering to 6-7% YoY in FY21. It has been nearly flat in FY20.
Regionally, demand is currently doing best in the East (up >10% YoY) and the
West, while it is the worst in the South (declining 8-10% YoY). Demand in the
North/Central is also growing in low single digits.
Demand in the South is expected to recover as the Polavaram project has
been re-tendered (which should drive demand in Telangana). Andhra
Pradesh projects should also start to get tendered soon.
UTCEM is currently falling short of grinding capacity in the East (given strong
demand growth there), which should be addressed 12-15 months down the
line when its planned 3.4mtpa capacities get commissioned.
9MFY20 has already reduced net debt by 15% to INR186b (implying 1.9x net
We estimate decline in net debt to ~INR125b (1.1x) in FY21 led by strong
free cash flow (FCF) of INR70b (~6% yield) in FY21E (v/s INR20b in FY19).
UTCEM is also looking to divest non-core assets associated with the Binani
acquisition (China cement plant, UAE grinding unit and Europe fiberglass
business), which is expected to fetch INR10b (5% of net debt). It has also
recently sold its 0.6mt cement capacity in Bangladesh for a consideration of
Clinker-backed capacity addition is limited to 16-17mt (+3.5% YoY) annually
in the next 2 years, which should lag demand growth, driving up utilization.
While cement grinding unit expansions are higher at 20-22mt (+4.5-5% YoY)
annually, the excess additions (beyond clinker-backed supply) does not
necessarily create new supply, and are at times only for logistical reasons.
While new capacity additions are the highest in the East (~25% growth in the
next 18 months), UTCEM expects them to get absorbed given strong >10%
demand growth in the region. Industry may, however, not have pricing
power in the medium term as there could be a fight for market share.
For the acquired Century (CTIL) capacities, 55% of the volumes have been
rebranded from Birla Gold (cement brand of CTIL) to UltraTech by Dec’19,
which should rise to 84% by Mar’20. This should improve CTIL’s realization
by INR10-12/bag (3-4%) in 1QFY21.
Clinker-backed supply limited, East having maximum expansions
Shareholding pattern (%)
FII Includes depository receipts
Century – Rebranding and revamping of assets to improve margins
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com) +91 22 7199 2309
Pradnya Ganar - Research analyst
(Pradnya.Ganar@motilaloswal.com); +91 22 6129 1537
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.