Ultratech Cement
BSE SENSEX
27,167
S&P CNX
8,336
5 July 2016
Update
| Sector:
Cement
CMP: INR3,371
TP: INR3,673 (+9%)
Buy
UTCEM-JPA deal size increased by INR2.9b
Regulatory approvals awaited; no change in shareholding pattern
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)/ (USD b)
Avg Val ( INR m)
Free float (%)
UTCEM IN
274.4
3,600/2,581
5/16/13
925.2/13.7
918
37.5
Contrary to media reports, deal well on track:
Media reports last week indicated
that the UTCEM-JPA deal had hit a roadblock. Apparently, UTCEM was seeking to
adjust the deal by INR15b by cherry-picking JPA’s cement assets while JPA had
sent parallel feelers to other suitors and PE funds, following which UTCEM is
believed to have shot letters to JPA regarding the binding agreement. ICICI Bank
had also agreed to invoke the SDR mechanism on fears of the deal collapsing.
However, UTCEM has clarified that the deal is well on track and that it has
increased the deal size from INR159b to INR161.9b.
Regulatory approvals no longer a hurdle:
With the amendment to the MMDR Act
passed, the acquisition is subject to approval of shareholders and creditors,
sanction of scheme of arrangement by Bombay High Court, approval of
Competition Commission of India (CCI) and all other statutory approvals, which
could take around 12 months. Complementary market mix keeps us optimistic on
CCI nod, despite the large size of the deal. 50% of JPA’s capacities fall in the Satna
cluster, where UTCEM had no presence. State-wise, the combined entity’s market
share would be below 30%, while its share in the central region would be ~30%.
Nature of consideration:
As consideration, UTCEM would issue the following to
JPA.
i.
1,50,000 unlisted non-convertible cumulative redeemable preference
shares of INR100k each
ii.
13,200 unsecured non-convertible redeemable debentures having face
value of INR1m each
iii.
10 unlisted non-convertible cumulative redeemable preference shares of
INR100k each
iv.
18,049 unsecured non-convertible redeemable debentures having face
value of INR1m each
Valuation and view:
At the critical juncture of bottoming out growth, UTCEM’s
strong focus on growth makes it our preferred play. We are yet to factor in the
impact of JPA deal, as regulatory approvals are awaited. We expect return ratios
to revive to 15-18% and EBITDA/ton to post 20%+ CAGR till FY18 in existing assets.
The stock trades at an EV of 17.7x FY17E and 13.7x FY18E EBITDA, and at
USD171/ton (FY17E) and USD164/ton (FY18E). We value UTCEM at
INR3,673/share (EV of 12x FY18E EBITDA; USD212/ton).
Buy.
Financials Snapshot (INR b)
Y/E Mar
2016 2017E 2018E
Net Sales
238.4 265.6 314.5
EBITDA
43.5
54.9
78.3
PAT
21.7
28.8
45.7
EPS (INR)
79.3 104.9 166.5
Gr. (%)
7.9
32.4
58.7
BV/Sh (INR)
755.8 849.1 998.2
RoE (%)
11.0
13.1
18.0
RoCE (%)
9.3
11.2
15.3
P/E (x)
42.5
32.1
20.2
P/BV (x)
4.5
4.0
3.4
EV/EBITDA (x)
EV/Ton (USD)
19.4
183
17.7
171
13.7
164
Shareholding pattern (%)
As On
Mar-16 Dec-15 Mar-15
Promoter
62.5
62.8
61.7
DII
7.1
7.6
5.9
FII
19.0
18.4
21.1
Others
11.4
11.2
11.4
FII Includes depository receipts
Stock Performance (1-year)
UltraTech Cem.
Sensex - Rebased
3,800
3,400
3,000
2,600
2,200
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Aashumi Mehta
(Aashumi.Mehta@MotilalOswal.com); +91 22 3010 2397
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.