UltraTech Cement ( ULTCEM)

CMP: | 7460 Target: | 8700 (17%) Target Period: 12 months BUY

July 23, 2021

Margin stays firm; outlook remains healthy…

About the stock: UltraTech is the largest cement manufacturer in India with a
domestic capacity of 111.4 MT (23% of total market) with a leadership position in

Result Update
most regions (excluding east). It has grown through organic and inorganic routes
and added around ~30 MT of capacity in the last three years. Particulars
Particulars Amount
 It has shown its capability to successfully integrate the acquired assets and
Mcap | 215275 crore
ramped-up its utilisations in a profitable manner
Debt (FY21) | 14915 crore
 The company is now focusing on fast growing market of eastern India, which Cash & Invest (FY21) | 1881 crore
accounts for 10.2 MT of its total 19.6 MT planned expansion over FY21-23E EV | 228308 crore
52 week H/L | 7543/| 3736

Q1FY22 Results: UltraTech surprised positively on the margin front in Q1FY22 Equity cap | 288.2 crore
leading to better profitability despite 17.8% QoQ drop in revenues. Face value | 10

 Clocked revenue of | 11,477 crore, down 17.8% QoQ led by sales volumes Shareholding pattern
de-growth of 22.8% to 20.5 MT. On YoY basis, revenues were up 55.6% (in %) Jun-20 Sep-20 Dec-20 Mar-21
Promoter 60.0 59.9 60.0 60.0
 EBITDA/t up 17% QoQ to | 1,545/t (vs. last quarter EBITDA/t of | 1321/t). FII 16.1 15.3 16.8 17.3
EBITDA margin was at 27.6%, up 249 bps QoQ, 112 bps YoY DII 14.6 15.5 14.2 13.8
 Ensuing PAT was at | 1,681 crore, up 108.7% YoY, down 5.4% QoQ vs. our Others 9.3 9.3 9.1 8.9
estimate: | 1457 crore) Price Chart

ICICI Securities – Retail Equity Research

8000 20000
What should investors do? Market leadership, strong brand with highest retail 6000 15000
presence and robust balance sheet justifies UltraTech’s premium valuations.
4000 10000
 With a target to become net debt free by FY23E and expected RoCE of
2000 5000
17%+, we remain positive on company. Hence, we maintain BUY rating
0 0
Target Price and Valuation: We value UltraTech at | 8,700 i.e. 17x FY23E
Jul-18
Jan-19
Jul-19
Jan-20
Jul-20
Jan-21
Jul-21
EV/EBITDA
UltraTech (LHS) NIFTY (RHS)
Key triggers for future price performance:
 The new organic capacities are being added at lower capital cost (US$60/t) Key risks y
that will help in boosting return ratios (to generate 16-18% IRR)  Any delay in commissioning of
new capacity may impact return
 Despite capex plans, the company also aims to become net debt-free by
ratios
FY23E supported by strong operating cash flows (from existing and
 Volatility in prices of imported
acquired assets) and through efficient w/cap management
coal/petcoke may impact
margins
Alternate Stock Idea: Apart from UltraTech, in our cement sector coverage we also
like ACC. Research Analyst
 It has strong balance sheet with debt frees status. The company is focusing Rashes Shah
on cost reduction and also adding new capacities via internal accruals [email protected]

Key Financial
BUY Summary
with a target price of ₹ 2,800/sh
3 Year CAGR 2 Year CAGR
Key Financials FY18 FY19 FY20 FY21 FY22E FY23E
(%) (%)
Net Sales (| crore) 29526 39933 40634 43188 13.5 50045 55410 13.3
EBITDA (| crore) 5826 7076 8652 10964 23.5 12844 14558 15.2
EBITDA (%) 19.7 17.7 21.3 25.4 25.7 26.3
Adjusted PAT (| crore) 2458 2530 3574 5506 30.9 6865 8037 20.8
EPS (|) 89.6 87.7 123.8 190.8 237.9 278.5
EV/EBITDA 37.4 32.3 26.3 20.2 17.1 14.6
EV/t ($) 367.7 288 286 279 274 232
RoNW (%) 9.5 7.6 9.3 12.7 14.0 14.4
RoCE (%) 10.0 9.0 11.4 14.7 16.7 17.9
Source: Company, ICICI Direct Research
 Result Update | UltraTech Cement ICICI Direct Research

Key performance highlights

 Domestic sales volumes were at 20.5 MT (down 22.8% QoQ) while blended
realisations were higher by 6.4% QoQ to | 5,590/tonne, up 5.7% YoY

 Capacity utilisation was at 73% vs. 94% in Q4FY21. In terms of regions,

south reported over 50% utilisation. North & central reported utilisation of
over 73% while east region operated at over 90% capacity utilisation

 Cost of production was up 2.9% QoQ to | 4045/t led by a sharp rise in diesel,
petcoke, coal prices that were up 6%, 12%, 19%, respectively, QoQ

 However, EBITDA/t improved sequentially by 17% to | 1545/t (vs. I-direct

estimate: | 1,375/t) on the back of higher realisations

Key conference call highlights

 Demand: Demand is picking up on all fronts, strong in central & east region.
Large infra projects are expected to continue to generate demand especially
the roads segment as awarding and execution. Both picked up with
constructions speed of 37 km/day now vs. 4-5 km/day long time back.
Further, rural housing is seeing a gradual recovery supported by higher
MSP for Kharif crop, increased procurement by government agencies

 Cost of production: Higher petcoke & coal prices are expected to continue
to keep costs higher. No major spike is expected in fixed overheads post
resumption of normalcy. DFC will be the game changer, helping to bring
down freight costs. UNCL (erstwhile Binani) is connected to DFC

 Cement Prices: Witnessed price hikes of over 10% in East & South, 7-10%
in North & West regions and 3-6% in the Central regions. Cement prices are
expected to continue to remain strong, going forward. However, the
ongoing monsoon may lead to a flattish price trend in the near term

 Clinker/Limestone: Are expected to become dearer in the long term and act
as a key entry barrier. The company does not have limestone issues for
additional ~50 MT capacity

 Expansion: On track to reach 130.9 MT by FY23E. Total 3.2 MT in East &

Central to be added in Q2FY22E, 4.1 MT in Q2FY23E and balance 12.2 MT
to get commissioned by Q4FY23E. Incurred capex of | 1000 crore in Q1FY22
 Debt: Long term debt is at | 19,000 crore with treasury surplus of | 13,000
crore. The company repaid | 5,000 crore long term debt in July 2021

Exhibit 1: Variance Analysis

Q1FY22 Q1FY22E Q1FY21 YoY (%) Q4FY21 QoQ (%) Comments
Net Sales 11,477 11,424 7,374 55.6 13,966 -17.8 Capacity utilsation stood at 73% vs 94% in Q4FY21.
Total operating cost 8,305 8,503 5,418 53.3 10,453 -20.6
EBITDA 3,172 2,921 1,955 62.2 3,512 -9.7
EBITDA Margin (%) 27.6 25.6 26.5 112 bps 25.2 249 bps Higher realisaitons aided in the margin expansion
PAT 1,681 1,457 806 108.7 1,778 -5.4

Key Metrics
Volume (MT) 20.5 21.3 13.9 47.3 26.6 -22.8
Realisation (|) 5,590 5,376 5,290 5.7 5,252 6.4
EBITDA per Tonne (|) 1,545 1,375 1,403 10.2 1,321 17.0
Source: Company, ICICI Direct Research

Exhibit 2: Change in estimates

FY22E FY23E Comments
(| Crore) Old New % Change Old New % Change
Revenue 49,541.2 50,044.9 1.0 55,065.7 55,409.6 0.6 Volume growth to remain healthy in FY22E & FY23E
EBITDA 12,007.3 12,843.6 7.0 13,582.9 14,557.5 7.2 Operating leverage to keep margins healthy going ahead
EBITDA Margin (%) 24.2 25.7 143 bps 24.7 26.3 161 bps
PAT 6,233.7 6,864.6 10.1 7,364.9 8,037.4 9.1
EPS (|) 216.0 237.9 10.1 255.2 278.5 9.1
Source: Company, ICICI Direct Research

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 Result Update | UltraTech Cement ICICI Direct Research

Key triggers for future price performance

Target total capacity of 160 MT by FY30E; to reach 131 MT by FY23E
The target of reaching 160 MT by FY30E from 111.4 MT indicates capacity CAGR of
3.7% in FY20-30E. The newly announced cement capacity expansion of 12.8 MT (9.1
MT clinker capacity) along with ongoing capex of 6.7 MT would take its total capacity
to 130.9 MT by end of FY23E. Region wise, major capacities are being added in
eastern and central region (73% of 19.5 MT), which has lowest road and power
density per capita representing higher growth potential while rural population share
remains one of the higher, offering stability in prices. Balance 27% of new capacities
are being added in the north region. Furthermore, as these new organic capacities
are being added at lower capital costs (US$60/t), it will help in boosting return ratios
(new capacity to generate 15%+ IRR
Efficiency measures to help sustain margins; b/s to stay firm
While there is uncertainty in the cost inflation with respect to price fluctuations in
petcoke and diesel prices, the management’s focus on consolidating the acquired
assets, driving synergies, especially on the logistics front, improving premium
segment share (to increase from 10% to 15% in two years) and containing fixed
overheads on sustainable basis provides cushion against risk of margin erosion
going forward. On the leverage front, the net debt/EBITDA is now at 0.5x vs. 1.72x
last year

Valuation & Outlook

UltraTech has successfully integrated acquired assets while protecting its b/s. Given
the positive outlook, the new capex targeting central and east region would address
the issue of capacity constraint post FY24E. With a target to become net debt free by
FY23E and with RoCE of 17%+, we remain positive on the company and maintain
BUY rating with a revised target price of | 8700/share (i.e. 17x FY23E EV/EBITDA,
earlier target price | 7,500/share).

Exhibit 3: Valuation matrix

Sales Gr EPS Gr PE EV/Tonne EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) ($) (x) (%) (%)
FY19 39933.3 4.7 87.7 12.8 89.1 288 32.3 7.3 9.0
FY20 40634.2 1.8 123.8 41.2 39.5 286 26.3 9.3 11.0
FY21 43188.4 6.3 190.8 54.1 40.3 279 20.2 12.7 14.6
FY22E 50044.9 15.9 237.9 24.7 31.4 274 17.1 14.0 16.7
FY23E 55409.6 10.7 278.5 17.1 26.8 232 14.6 14.4 17.9
Source: Company, ICICI Direct Research

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 Result Update | UltraTech Cement ICICI Direct Research

Financial story in charts

Exhibit 4: Sales volumes up 47.3% YoY on lower base Exhibit 5: Volumes expected to cross ~100 MT by FY23E
30.0 26.6 60.0
22.8 120.0
25.0 40.0 100.4
20.5 20.0 20.5 19.2 20.5 92.1
17.8 100.0 82.6
20.0 80.9 78.2
13.9 20.0 80.0
15.0 59.1
0.0 60.0 48.9
10.0
-20.0 40.0
5.0
20.0
0.0 -40.0
0.0
Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21

Q3FY21

Q4FY21

Q1FY22
FY17 FY18 FY19 FY20 FY21 FY22E FY23E

Sales volumes -LHS Growth (%) -RHS Sales Volumes (In MT)

Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

Exhibit 6: Realisations improve 5.7% YoY, 6.4% QoQ Exhibit 7: Realisation growth to moderate with volume pick-
5800 15.0 up
5544 5590
5600
10.0 6000 6.0
5400 5290 5432 5519
5220 5215 5184 5252 5500 5199 5231 5.0
5200 5.0 4883 4998 4937 4.0
4991 5049 5000 3.0
5000
- 4500 2.0
4800 1.0
4000
4600 (5.0) 0.0
3500 -1.0
Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21

Q3FY21

Q4FY21

Q1FY22

3000 -2.0
FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Realisations/t - LHS Growth (%) -RHS
Realisation (|/tonne) -LS Growth (%) -RS
Source: Company, ICICI Direct Research

Source: Company, ICICI Direct Research

Exhibit 8: Domestic capacity to reach ~131 MT by FY23E Exhibit 9: Standalone revenues to grow at 13.3% CAGR in
Capacity FY21-23E
Zone (in mt) Capacity Total
additions
North 23.8 5.2 29.0 60,000 55410
50045
Central 23.3 4.2 27.5 50,000 43188
39933 40634
East 16.1 10.1 26.2
40,000
West 27.7 27.7 29526
30,000 23709 23891
South 20.5 20.5
Domes tic Total 111. 4 19. 5 130. 9 20,000
Overseas 5.4 5.4 10,000
Total 116. 8 136. 3 -
Source: Company, ICICI Direct Research FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E

Sales (| crore)

Source: Company, ICICI Direct Research

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 Result Update | UltraTech Cement ICICI Direct Research

Exhibit 10: EBITDA/t increases YoY led by better pricing Exhibit 11: EBITDA/t trajectory to remain healthy, going
environment forward

1800 1600 1394 1450

1545 1328
1600 1364 1403 1329 1400
1290 1321 1107
1400 1103 1200 1015
1200 1020 986
893 1000 875
1000
800 800

(|)
600 600
400 400
200
0 200
0
Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21

Q3FY21

Q4FY21

Q1FY22
FY17 FY18 FY19 FY20 FY21 FY22E FY23E

EBITDA/tonne EBITDA/Tonne

Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

Exhibit 12: EBITDA growth to trend Exhibit 13: PAT margin to scale up to over 14% by FY23E
16000 26.3 30.0 led by healthy realisations, efficiency measures
25.7
14000 25.4 25.0 14.5
12000 9000 13.4 13.7 16.0
20.8 19.7 21.3 20.0 12.4
10000 8000 14.0
19.5 17.7 11.0
7000 12.0
| crore

8000 15.0
14558

17.3 6000

(%)
10.0
12844

7.6
5000
10964

6000 6.1

8037.4
10.0 8.0
4000

6864.6
8652

4000
7076

6.0

5455.6

5342.1
5826

3000
4969

5.0
4627
3915

2627.7

2231.3

2416.1
2000 2000 4.0
0 0.0 1000 2.0
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E 0 0.0
FY17E FY18 FY19 FY20 FY21E FY22E FY23E
EBITDA - LHS EBITDA Margin - RHS
Net profit - LS Net profit margin -RS
Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

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 Result Update | UltraTech Cement ICICI Direct Research

Financial Summary

Exhibit 14: Profit & Loss Account Exhibit 15: Cash flow statement
(Year-end March) FY20 FY21 FY22E FY23E (Year-end March) FY20 FY21 FY22E FY23E
Total operating Income 40, 634 43, 188 50, 045 55, 410 Profit after Tax 5,456 5,342 6,865 8,037
Growth (%) 1.8 6.3 15.9 10.7 Add: Depreciation 2,455 2,434 2,568 2,997
Raw material cost 6,907 7,539 8,452 9,589 (Inc)/dec in Current Assets -435 261 -1,330 -262
Power & Fuel cost 7,703 7,552 9,673 10,844 Inc/(dec) in CL and Provisions -815 6,620 -715 361
Freight cost 9,570 9,940 10,785 11,446 CF from operating activities 6, 660 14, 658 7, 389 11, 133
Employees cost 2,336 2,182 2,308 2,447 (Inc)/dec in Investments -288 -920 0 0
Others 5,465 5,012 5,984 6,526 (Inc)/dec in Fixed Assets -1,100 -3,062 -4,500 -3,000
Total Operating Exp. 31,982 32,224 37,201 40,852 Others -1,138 1,142 0 0
EBITDA 8, 652 10, 964 12, 844 14, 558 CF from inves ting activities -2, 526 -2, 839 -4, 500 -3, 000
Growth (%) 22.3 26.7 17.1 13.3 Issue/(Buy back) of Equity 14 0 0 0
Depreciation 2,455 2,434 2,568 2,997 Inc/(dec) in loan funds -1,565 -3,185 -2,500 -4,500
Interest 1,704 1,259 1,114 712 Dividend paid & dividend tax -452 -1,288 -1,218 -1,218
Other Income 727 789 866 800 Inc/(dec) in Sec. premium 0 0 0 0
PBT 5,220 8,059 10,027 11,648 Others 16 1,002 0 0
Total Tax -236 2,553 3,163 3,611 CF from financing activities -1, 987 -3, 471 -3, 718 -5, 718
PAT 5, 456 5, 506 6, 865 8, 037 Net Cash flow -346 1,571 -330 2,415
Growth (%) 115.6 0.9 24.7 17.1 Opening Cash 656 310 1,881 1,552
Adj. EPS (|) 124 191 238 279 Clos ing Cas h 310 1, 881 1, 552 3, 967
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

Exhibit 16: Balance Sheet summary Exhibit 17: Ratio sheet

(Year-end March) FY20 FY21 FY22E FY23E (Year-end March) FY20 FY21 FY22E FY23E
L iabilities Per s hare data (|)
Equity Capital 289 289 289 289 Adj. EPS (|) 123.8 190.8 237.9 278.5
Reserve and Surplus 38,008 43,064 48,711 55,530 Cash EPS 274.1 269.5 326.9 382.4
Total Shareholders funds 38,296 43,353 48,999 55,819 BV 1,327.1 1,502.3 1,698.0 1,934.3
Total Debt 18,100 14,915 12,415 7,915 DPS 13.0 37.0 35.0 35.0
Deferred Tax Liability 4,077 5,219 5,219 5,219 Cash Per Share 10.7 65.2 53.8 137.5
Total L iabilities 60, 473 63, 487 66, 633 68, 952 Operating Ratios (%)
EBITDA Margin 21.3 25.4 25.7 26.3
As s ets PBT / Total Operating income 12.8 18.3 20.0 21.0
Gross Block 64,923 67,569 72,091 75,491 PAT Margin 13.4 12.4 13.7 14.5
Less: Acc Depreciation 19,668 22,102 24,670 27,667 Inventory days 34.2 31.9 28.0 28.0
Net Block 45,255 45,467 47,421 47,824 Debtor days 18.9 17.5 17.0 16.0
Capital WIP 1,106 1,522 1,500 1,100 Creditor days 28.0 40.5 45.0 40.0
Total Fixed Assets 46,361 46,989 48,921 48,924 Return Ratios (%)
Investments 13,090 20,786 20,286 20,286 RoE 9.3 12.7 14.0 14.4
Inventory 3,834 3,722 3,956 4,545 RoCE 11.4 14.7 16.7 17.9
Debtors 1,848 2,286 2,376 2,482 RoIC 11.6 16.0 18.1 20.2
Loans and Advances 2,300 1,353 1,649 1,675 Valuation Ratios (x)
Other Current Assets 3,039 3,399 4,108 3,649 P/E 39.5 40.3 31.4 26.8
Cash 310 1,881 1,552 3,967 EV / EBITDA 26.3 20.2 17.1 14.6
Total Current Assets 11,331 12,641 13,641 16,318 EV / Net Sales 5.6 5.1 4.4 3.8
Creditors 3,250 6,334 6,005 6,139 Market Cap / Sales 5.3 5.0 4.3 3.9
Provisions 7,059 10,595 10,209 10,437 Price to Book Value 5.6 5.0 4.4 3.9
Total Current Liabilities 10,309 16,929 16,215 16,576 Solvency Ratios
Net Current Assets 1,022 -4,288 -2,573 -257 Debt/EBITDA 2.1 1.4 1.0 0.5
Others Assets 0 0 0 0 Debt / Equity 0.5 0.3 0.3 0.1
Application of Funds 60, 473 63, 486 66, 633 68, 952 Current Ratio 1.1 0.7 0.8 1.0
Source: Company, ICICI Direct Research
Quick Ratio 1.1 0.6 0.7 0.7
Source: Company, ICICI Direct Research

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 Result Update | UltraTech Cement ICICI Direct Research

Exhibit 18: ICICI Direct coverage universe (Cement)

Company CMP EPS(|) EV/EBITDA (x) EV/Tonne ($) RoCE (%) RoE (%)
(|) Rating FY20 FY21 FY22E FY20 FY21 FY22E FY20 FY21 FY22E FY20 FY21 FY22E FY20 FY21 FY22E
ACC* 2,287 BUY 73 85 125 17.6 16.5 10.5 167 139 134 17.4 14.5 20.6 11.9 12.6 16.0
Ambuja Cem* 399 BUY 7.7 9.0 10.9 17.4 15.9 12.6 173 186 166 12.2 17.6 19.1 14.7 20.3 21.7
UltraTech Cem 7,460 BUY 124 191 238 26.3 20.2 17.1 286 279 274 11.4 14.7 16.7 9.3 12.7 14.0
Shree Cement 28,100 BUY 435 641 706 26.4 24.2 21.5 286 265 261 13.8 18.2 18.5 12.1 15.2 14.6
Heidelberg Cem 266 BUY 11.8 11.0 14.6 10.4 11.1 8.6 139 123 117 22.3 20.9 27.2 20.4 20.2 23.7
JK Cement 3,142 HOLD 51.8 99.6 107.0 20.3 15.5 14.1 201 183 187 16.2 18.6 18.2 12.8 20.6 18.6
JK Lakshmi Cem 705 BUY 7.0 7.1 6.8 20.2 17.4 16.9 94 94 86 7.5 9.2 9.3 5.9 5.8 5.2
Star Cement 117 BUY 6.9 5.7 7.3 9.6 10.3 8.5 131 90 86 17.1 14.4 16.3 15.4 12.0 14.1
Ramco Cement 1,107 BUY 25.7 29.8 31.5 20.5 16.4 15.1 180 175 171 7.5 8.6 8.9 12.3 12.7 11.8
Sagar Cement 1,272 BUY -1.9 12.9 5.8 24.2 18.6 19.2 89 94 77 5.4 8.1 6.4 -0.5 3.4 1.6
Source: Company, ICICI Direct Research, *ACC and Ambuja FY20=CY19, FY21E=CY20E, FY22E=CY21E

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 Result Update | UltraTech Cement ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

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 Result Update | UltraTech Cement ICICI Direct Research

ANALYST CERTIFICATION
I/We, Rashesh Shah (CA) Research Analyst, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities.
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ICICI Securities | Retail Research 9