17 February 2015
Update | Sector: Cement
Ultratech Cement
BSE Sensex
29,136
S&P CNX
8,809
CMP: INR3,082
TP: INR3,505 (+14%)
Buy
Growth conviction, market share focus intact
Kotputli plant visit takeaways – high emphasis on operating standards
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
UTCEM IN
274.4
3,196/1,657
-3/5/42
845.7
13.7
We visited UTCEM’s cement plant at Kotputli (Rajasthan) and interacted with the
management, including CFO, Mr Atul Daga.
The 3.3mt plant is one of UTCEM’s most efficient, with better operating
parameters, strategic location to serve northern India markets, and high safety
and emission standards.
The management’s conviction in industry demand growth is intact. As are its
market share focus and ambition to gradually evolve into a complete building
solutions company.
Financial Snapshot (INR Billion)
Y/E Mar
2015E 2016E 2017E
Sales
235.4 279.0 329.7
EBITDA
43.0 64.8 85.7
NP
23.3 34.6 49.5
Adj EPS (INR) 85.0 126.2 180.4
EPS Gr. (%)
12.5 48.4 43.0
BV/Sh (INR) 696.0 809.4 972.3
RoE (%)
12.9 16.8 20.2
RoCE (%)
15.2 18.9 23.2
Payout (%)
13.7 10.1 9.7
Valuations
P/E (x)
36.3 24.4 17.1
P/BV (x)
4.4
3.8
3.2
EV/EBITDA (x) 20.0 13.3 9.6
EV/Ton (USD) 225 210 200
Shareholding Pattern (%)
As on
Promoter
DII
FII
Others
Dec-14 Sep-14 Dec-13
61.7
5.9
21.3
11.2
61.7
5.7
21.7
11.0
62.0
4.6
22.8
10.6
High emphasis on efficiencies, safety/emission standards
Kotputli (130km from Jaipur and 160km from Delhi) is one of UTCEM’s
newest (March 2009) integrated plants, with 3.3mt (10kt/day) of clinker and
3.1mt of in-situ grinding capacity, along with 2x23MW of power plant.
Other two split grinding units are located in Dadri, UP (210km) and Panipat,
Haryana (265km). These plants are located strategically and have reduced
lead distance meaningfully in the North, post commissioning.
The plant’s operating efficiencies are higher than the company average: (a)
power usage of 70-75kwh/t (average of ~79kwh/t in FY14), and (2) coal
usage (~100% pet coke) of 680kcal/t (average of 714kcal/t).
High emphasis on optimized plant management, safety standards and
emission parameters (bag house, et cetera) speak for better sustainability.
Industry growth conviction, market share focus intact
Notes:
FII incl. depository receipts
Stock Performance (1-year)
UltraTech Cem.
Sensex - Rebased
3,400
2,900
2,400
1,900
1,400
The management’s conviction in medium-term demand growth is intact. It
expects 300kg of per capita consumption by 2021 (against 195kg now),
implying a CAGR of 8-9%.
Government programs to drive infrastructure spending are key
monitorables. Management expects demand growth normalcy by CY15. On
ground improvement is limited to few pockets viz. UP (a few road projects),
Pune, Haryana etc. Rural demand growth has flattened.
Focus on growth will remain intact, though the pace of the next round of
organic expansion (post 71mt of domestic capacity by FY16) will depend on
demand uptick in FY16. Acquisition of JP's MP plant will conclude by CY15.
Net debt-equity of <0.75x (0.5x post MP plant acquisitions) and net debt-
EBITDA of 1.5-2x (1.6x post MP plant acquisitions) are comfortable. UTCEM
is serious on coal block, but will be prudent while bidding.
Immediate likelihood of global foray has reduced, with recent acquisitions.
With largest capacity in white cement, putty, RMC in place, UTCEM's vision
is to gradually evolve into a complete building solutions company.
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Ultratech Cement
Kotputli integrated plant
(3.3mt clinker and 3.1mt of
grinding) and other split
grinding units of 1.3-1.6mt
each
Exhibit 1: Kotputli cement plant is a key centre of UTCEM’s north India market
Exhibit 2: Plant location on Google map: ~130KM from Jaipur and near Delhi-Jaipur EW
The plant has 35+ years of
R/M reserve along with
proximity to other input
sources viz. pet coke
(Jamnagar and Panipat),
gypsum (Gujarat) and fly
ash (within 125KM)
Limestone mine
Cement plant
Delhi-Jaipur expressway
Source: Google Map
High safety and emission
standards are maintained
along with above-average
operating efficiencies
Exhibit 3: Plant view
Source: Internet
17 February 2015
2

Ultratech Cement
Valuation and view: Best proxy to play demand recovery cycle
Best play on structural
demand recovery; also
offers true pan-India
presence
We expect UTCEM to
generate ~INR300b of
operating cash flow (OCF)
over FY15-18
Being the largest cement company, with ~71mt of domestic capacity by FY16,
UTCEM offers the best play on structural demand recovery and also offers true
pan-India presence.
Its pricing premium, superior cost structure and presence in white cement
business enable it to command superior profitability among large cap peers.
In a scenario of structural up-cycle over FY15-18E, with ~10% demand CAGR, 8-
9% realizations CAGR and 4% cost CAGR, we expect UTCEM to generate
aggregate operating cash flow (OCF) of ~INR280b.
We estimate annual cash flow from operations at ~13% of current market
capitalization by FY18. Ongoing expansions (in North and East) are scheduled for
conclusion in FY16, with OCF of INR73b in FY17 (excluding JP’s MP plants).
Assuming annual maintenance capex of INR8b-9b, it leaves INR65b of annual
surplus cash for consistent future growth.
The stock has run sharply in past one month and outperformed peers, as
concerns over global acquisitions subsided. With strong domestic fundamentals,
UTCEM remains our preferred large cap pick.
We would view any correction as an opportunity to enter the largest and one of
India’s most efficient cement companies. The stock trades at an EV of 9.6x
FY17E EBITDA and at USD200/ton.
Buy
with a target price of INR3,505
(USD225/ton, implied FY17E EV/EBITDA of 11x).
Exhibit 5: EV/ton
Exhibit 4: EV/EBITDA
20
16
12
8
4
0
1.9
EV/EBITDA(x)
Peak(x)
Avg(x)
15.5
8.8
13.9
Min(x)
260
210
160
110
60
10
EV/ton (USD)
Max
204
Avg
Min
198
124
32
Source: Company, MOSL
Source: Company, MOSL
17 February 2015
3

Ultratech Cement
Story in charts
Exhibit 6: UTCEM using downturn to acquire attractive assets at good price…
Opening Cap
Organic
Inorganic
5
5
0
0
49
FY10
49
FY11
0
49
FY12
2
49
FY13
3
51
5
3
54
62
71
FY14
FY15E
FY16E
FY17E
Note: After factoring JPA’s MP plant acquisition of 4.9mt
Source: Company, MOSL
Exhibit 7: …improving capacity market mix and…
FY14
West
25%
Central
10%
FY16
East
15%
East
16%
West
25%
Central
15%
South
29%
North
21%
Source: Company, MOSL
South
24%
North
20%
Source: Company, MOSL
Exhibit 8: ...resulting in uptick in capacity market share (%)…
Capacity market share (%)
17.5
16.0
15.3
14.8
14.8
16.1
17.3
Exhibit 9: ...without stretching balance sheet (%)
Net debt (INR b)
Net DER (x) RHS
0.2
0.4
0.2
2
0.0
FY12
2
0.0
FY13
-2
FY14
0.0
47
84
57
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY15E
FY16E
FY17E
Source: Company, MOSL
Source: Company, MOSL
17 February 2015
4

Ultratech Cement
Exhibit 10: With new capacity, strong utilization levers in
place (5mt MP plant not factored in yet)
Exhibit 11: Expect margins to improve over FY16-17
Capacity (MT)
Dispatches (MT)
Cap. Util (%)
EBITDA (INR m)
Margin (%)
83
71
83
79
70
76
75
77
84
26.7
28.0
19.4
22.0 22.5
18.0
18.3
23.2
26.0
FY09
FY10
FY11
FY12
FY13
FY14 FY15E FY16E FY17E
FY09
FY10
FY11
FY12
FY13
FY14 FY15E FY16E FY17E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 12: Key assumptions
Capacity (MT)
Dispatches (MT)
Growth (%)
Cap. Util (%)
Grey Realization (INR/ton)
Increase (INR/ton) YoY
Blended Realn (INR/ton)
RM Cost
Power & Fuel
Other Expenditure
Staff Cost
Freight & Forwarding
Total Expenditure
Growth (%)
Blended EBITDA/ton
Grey EBITDA/ton
FY11
49.3
34.7
-1.0
70.3
3226
-3
3765
530
899
669
190
773
3061
22.0
730
714
FY12
49.3
40.7
17.5
82.6
3735
509
4399
624
1042
657
201
906
3430
12.1
970
874
FY13
51.5
40.7
-0.2
79.0
4103
368
4852
706
1043
753
235
1025
3762
9.7
1090
981
FY14
54.5
41.5
2.0
76.1
4000
-102
4771
791
983
809
241
1089
3912
4.0
859
730
FY15E
62.2
46.4
12.0
74.7
4264
264
4999
778
1052
827
253
1176
4086
4.4
914
798
FY16E
66.7
51.1
10.0
76.6
4664
400
5391
799
1052
848
265
1176
4139
1.3
1252
1140
FY17E
66.7
56.1
9.9
84.2
5064
400
5803
815
1104
864
278
1234
4295
3.8
1508
1397
Source: Company, MOSL
Exhibit 13: Return ratios to see gradual uptick (%)
RoE
RoCE
Exhibit 14: Strengthening of operating cash flow to drive FCF
CFO (INR b)
CAPEX (INR b)
FCF (INR b)
29.2
31.0
28.5
21.1
26.6
18.4
20.5
18.7
12.8
12.9
23.5
21.3
14.4
15.2
23.2
18.9
16.8
20.2
6.8
13.0
8.6
3.0
3.1
12.3
27.1
38.1
-40.2
FY09
FY10
FY11
FY12
FY13
FY14 FY15E FY16E FY17E
Source: Company, MOSL
Source: Company, MOSL
17 February 2015
5

Ultratech Cement
Exhibit 15: Product mix (%)
PSC
3%
OPC
36%
PPC
61%
Exhibit 16: Freight mix (%)
Sea
3%
Rail
30%
Road
67%
Source: Company, MOSL
Source: Company, MOSL
Exhibit 17: Fuel mix (%)
E-auction
5%
Linkage
17%
Others
2%
Exhibit 18: Market-mix (%)
Central
12%
East
17%
South
23%
West
30%
Source: Company, MOSL
Source: Company, MOSL
North
18%
Pet coke
48%
Imported
coal
28%
17 February 2015
6

Ultratech Cement
Financials and valuation
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
% of Sales
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 (%)
2012
181,664
37.6
141,625
78.0
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
155,045
77.5
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
164,619
82.0
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
2015E
235,373
17.2
192,356
81.7
43,017
18.3
11,385
31,633
5,539
6,300
32,393
0
32,393
9,070
28.0
23,323
23,323
12.5
9.9
(INR Million)
2016E
279,002
18.5
214,192
76.8
64,810
23.2
15,429
49,381
6,803
5,500
48,077
0
48,077
13,462
28.0
34,616
34,616
48.4
12.4
2017E
329,686
18.2
244,035
74.0
85,651
26.0
17,024
68,627
6,398
6,500
68,728
0
68,728
19,244
28.0
49,484
49,484
43.0
15.0
Balance Sheet
Y/E March
Equity Share Capital
Reserves
Net Worth
Deferred liabilities
Loans
Capital Employed
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
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
2015E
2,744
188,214
190,957
25550
86,493
303,000
325,662
105,098
220,564
30,000
22,475
87,353
29,019
9,673
19,643
29,019
57,392
47,719
9,673
29,961
303,000
(INR Million)
2016E
2,744
219,323
222,066
27713
81,493
331,273
375,662
120,527
255,135
10,000
27,475
106,693
34,398
11,466
26,432
34,398
68,031
56,565
11,466
38,662
331,273
2017E
2,744
264,025
266,769
30119
76,493
373,381
398,162
137,551
260,611
22,500
27,475
143,183
40,646
13,549
48,342
40,646
80,389
66,840
13,549
62,794
373,381
17 February 2015
7

Ultratech Cement
Financials and valuation
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)
Working Capital Turnover (Days)
Leverage Ratio
Current Ratio
Interest Cover Ratio
Debt/Equity
2012
87.8
120.7
469.2
8.0
10.4
35.1
25.5
6.6
4.6
20.7
272
0.3
15.7
20.5
23.5
1.0
15
68
41
29
1.3
13.9
0.3
2013
96.0
130.5
556
9.0
11.0
32.1
23.6
5.5
4.1
18.1
256
0.3
14.2
18.7
21.3
1.1
19
69
43
15
1.2
16.9
0.4
2014
75.6
114.0
623
9.0
13.5
40.8
27.0
4.9
4.1
22.7
244
0.3
9.1
12.8
14.4
1.2
23
76
43
23
1.2
8.0
0.3
2015E
85.0
126.5
696
10.0
13.7
36.3
24.4
4.4
4
20.0
225
0.3
8.3
12.9
15.2
1.4
15
74
45
46
1.5
5.7
0.5
2016E
126.2
182.4
809
11.0
10.1
24.4
16.9
3.8
3
13.3
210
0.4
11.3
16.8
18.9
1.3
15
74
45
51
1.6
7.3
0.4
2017E
180.4
242.4
972
15.0
9.7
17.1
12.7
3.2
2.5
9.6
200
0.5
15.5
20.2
23.2
1.2
15
74
45
70
1.8
10.7
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 expense
(inc)/dec in FA
(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
17 February 2015
2012
41,304
478
-7,340
158
34,600
22
34,578
-31,575
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
-10,349
-43,025
79
12,557
-3,268
-2,539
6,829
-469
1,896
1,427
2014
36,160
5,310
-3,367
-3,399
34,704
-956
35,660
-23,348
-2,830
-26,178
69
-2,092
-3,192
-2,887
-8,102
1,380
1,427
2,775
2015E
43,017
6,300
-6,479
-218
42,621
0
42,621
-82,846
31,441
-51,405
-153
34,500
-5,539
-3,188
25,620
16,836
2,775
19,643
(INR Million)
2016E
64,810
5,500
-11,298
-1,913
57,099
0
57,099
-30,000
-5,000
-35,000
0
-5,000
-6,803
-3,507
-15,310
6,789
19,643
26,432
2017E
85,651
6,500
-16,838
-2,222
73,091
0
73,091
-35,000
0
-35,000
0
-5,000
-6,398
-4,782
-16,180
21,910
26,432
48,342
8

Ultratech Cement
NOTES
17 February 2015
9

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