24 December 2014

India | Cement

Event Update/Rating change

Global Markets Research

Ultratech Cement
A bargain deal

Rating: Accumulate

Ultratech to acquire JPs MP plant for INR 54bn

Target Price: INR 2,840

Upside: 12%
CMP: INR 2,545 (as on 23 December 2014)

The Board of Directors at Ultratech Cement (UTCEM IN) has approved

a proposal to acquire Jaiprakash Associates Bela and Sidhi plants in
Madhya Pradesh at an EV of INR 54bn. Clinker and cement capacity of
the units is at 5.2mn tonnes and 4.9mn tonnes, respectively. Both have
aggregate captive power plant capacity of 180 MW (please refer to
Exhibit 1). The transaction is subject to due diligence & regulatory
approvals, and it involves surplus clinker and thermal capacity.
Adjusted for this, EV per tonne will be INR 7,516, which is equivalent
to the current replacement cost (please refer to Exhibit 2).

Key data*
Bloomberg /Reuters Code:

UTCEM IN/ ULTC.BO

Current /Dil. Shares O/S (mn)

274/274

Mkt Cap (INR bn/USD mn)

698/11,032

Daily Vol. (3M NSE Avg.)

222,863

Face Value (INR)

10

1 USD = INR 63.3

Acquisition to be EPS dilutive in the near term

Prism Cement, which has a plant in the same area, had earned an
EBITDA of INR 650 per tonne in Q1FY15 when both of its kilns were
operational. We believe EBITDA of the JP Cement plant will be INR 950
per tonne, due to better pricing enjoyed by the company and lower
cost on account of Captive Power Plant(CPP) . However, the UltraTech
brand is not as well established in the central region, apart from south
MP. To gain market share, Ultratech may have to compromise on
margin in the near term. We expect it to earn an EBITDA of INR 800
per tonne in the near term. Cash and after depreciation-ROCE are
likely to be at 10.6% and 5.6%, respectively, even at a 100% utilization
level (please refer to Exhibit 3).
but likely to be accretive in the long run
The central region in which JPs plants is based is highly attractive from
a long-term perceptive. In the next few years, no major integrated
plant is expected to come on stream there. Thus, utilization levels of
the region would increase from 78% in FY14 to 95% in FY18E (vs allIndia levels from 69% to 78%). Thus, the margin profile of the central
plants is likely to increase sharply. Also, the company may be able to
capitalize on savings from freight by diverting surplus clinker from the
MP plants to the upcoming Bihar grinding unit rather than supplying it
from its plant in East India.
Valuation
We remain positive on the stock, given that the company will acquire
an operational cement plant in a structurally sound market of the
central region closer to replacement cost. In our view, it will grow
faster than the industry, due to its continued organic and inorganic
expansions. We maintain our old target price of INR 2,840 However,
due to the recent run-up in the stock; we change our rating to
Accumulate from Buy.

Note: *as on 23 December 2014; Source: Bloomberg

Price & Volume

3,200

1,500

2,700
1,000
2,200
500
1,700
1,200
Dec-13

Apr-14

Aug-14

Vol. in '000s (RHS)

0
Dec-14

Ultratech Cement (LHS)

Source: Bloomberg

Shareholding (%)

Q3FY14 Q4FY14 Q1FY15 Q2FY15

Promoter

62.0

61.7

61.7

61.7

Institutional Investors

25.6

25.9

25.7

25.6

Other Investors

6.1

6.3

6.8

6.9

General Public

6.4

6.1

5.8

5.9

Source: BSE

Price performance (%)

3M

6M

12M

Sensex

2.7

9.9

30.4

Ultratech Cement

(2.2)

(6.2)

44.1

ACC

(5.6)

(6.1)

25.0

6.4

2.1

26.6

Ambuja Cements
Source: Bloomberg

Key Financials
YE
March

Revenue
(INR mn)

YoY
(%)

EBITDA
(INR mn)

EBITDA
margin (%)

Adj PAT
(INR mn)

YoY
(%)

Fully DEPS
(INR)

RoE
(%)

P/E
(x)

EV/ton
(USD)

EV/EBITDA
(x)

FY14
FY15E
FY16E
FY17E

214,437
254,881
304,081
357,195

1.4
18.9
19.3
17.5

38,264
44,443
59,661
75,301

17.8
17.4
19.6
21.1

21,172
24,417
34,375
47,188

(21.2)
15.3
40.8
37.3

77.2
89.0
125.7
172.6

13.1
13.4
16.5
19.2

33.0
28.6
20.2
14.7

226.1
185.7
180.1
165.8

18.8
16.2
11.8
8.6

Note: pricing as on 23 December 2014; Source: Company, Elara Securities Estimate

Ravi Sodah ravi.sodah@elaracapital.com +91 22 6164 8517

Elara Securities (India) Private Limited

Ultratech Cement

Financials (YE March)

Share Capital
Reserves
Minority Interest
Borrowings
Total Liabilities
Gross Block
Less:- Accumulated Depreciation
Net Block
Add:- Capital work in progress
Investments
Net Working Capital
Net Deferred Tax
Total Assets
Cash Flow Statement (INR mn)
Cash profit adjusted for non cash items
Add/Less : Working Capital Changes
Operating Cash Flow
Less:- Capex
Free Cash Flow
Financing Cash Flow
Investing Cash Flow
Net change in Cash
Ratio Analysis
Income Statement Ratios (%)
Revenue Growth
EBITDA Growth
PAT Growth
EBITDA Margin
Net Margin
Return & Liquidity Ratios
Net Debt/Equity (x)
ROE (%)
ROCE (%)
Per Share data & Valuation Ratios
Diluted EPS (INR/Share)
EPS Growth (%)
DPS (INR/Share)
P/E Ratio (x)
EV/EBITDA (x)
EV/Sales (x)
P/BV (x)
EV per tonne (USD)
Dividend Yield (%)

FY16E

FY17E

304,081
59,661
10,359
70,019
15,644
54,375
6,687
47,688
13,203
34,485
110
34,375
34,375

357,195
75,301
14,475
89,775
16,734
73,041
5,708
67,333
19,994
47,339
151
47,188
47,188

FY14

FY15E

FY16E

FY17E

2,742
169,077
166
74,184
246,169
278,541
97,544
180,997
29,571
48,619
9,886
(22,904)
246,169

2,742
190,606
244
92,884
286,477
324,541
111,282
213,260
16,500
48,619
31,002
(22,904)
286,477

2,742
222,043
354
82,884
308,023
360,541
126,926
233,615
10,750
48,619
37,943
(22,904)
308,023

2,742
266,171
505
72,884
342,302
372,541
143,661
228,881
3,000
48,619
84,706
(22,904)
342,302

FY14

FY15E

FY16E

FY17E

33,816
803
34,619
(23,107)
11,511
(9,488)
320
2,343

44,455
(1,121)
43,335
(32,929)
10,406
9,590
19,995

56,926
(1,198)
55,728
(30,250)
25,478
(19,735)
5,743

69,932
(1,001)
68,931
(4,250)
64,681
(18,918)
45,763

FY14

FY15E

FY16E

FY17E

1.4
(18.2)
(21.2)
17.8
9.9

18.9
16.2
15.3
17.4
9.6

19.3
34.2
41.2
19.6
11.3

17.5
26.2
37.3
21.1
13.3

0.23
13.1
13.6

0.20
13.4
14.7

0.10
16.5
18.3

(0.12)
19.2
22.5

77.2
(21.3)
9.0
33.0
18.8
3.4
4.1
226
0.4

89.0
15.3
9.0
28.6
16.2
2.8
3.6
186
0.4

125.7
41.2
9.5
20.2
11.8
2.3
3.1
180
0.4

172.6
37.3
10.0
14.7
8.6
1.8
2.6
166
0.4

Revenue & margin growth trend

400,000
17.8

300,000

17.4

25

21.1

19.6

20
15

200,000
10
100,000

(%)

FY15E
254,881
44,443
8,399
52,843
13,737
39,105
6,223
32,882
8,465
24,417
78
24,340
24,340

0
FY14

FY15E

Net Revenues (LHS)

FY16E

FY17E

EBITDA Margin (RHS)

Source: Company, Elara Securities Estimate

Adjusted profit growth trend

50,000
40,000

41.2

37.3

FY16E

FY17E

15.3

30,000
20,000
10,000

50
40
30
20
10
0
(10)
(20)
(30)

(%)

Balance Sheet (INR mn)

FY14
214,437
38,264
5,312
43,576
11,390
32,186
3,610
28,576
7,404
21,172
68
21,105
22,060

(INR mn)

Net Revenues
EBITDA
Add:- Non operating Income
OPBIDTA
Less :- Depreciation & Amortization
EBIT
Less:- Interest Expenses
PBT
Less :- Taxes
Adjusted PAT
Minority Interest
Adjusted PATafter Minority Interest
Repoted PAT after Minority Interest

(INR mn)

Income Statement (INR mn)

(21.2)

0
FY14

FY15E

Adjusted PAT (LHS)

PAT Growth (RHS)

Source: Company, Elara Securities Estimate

Return ratios (%)

22.5

25
18.3

20
15
10

13.6

14.7

19.2
16.5

13.1

13.4

5
0
FY14

FY15E
ROE (%)

FY16E

FY17E

ROCE (%)

Source: Company, Elara Securities Estimate

Note: *as on 23 December 2014; Source: Company, Elara Securities Estimate

Elara Securities (India) Private Limited

Ultratech Cement

CPP
C:C Ratio
(MW)

Exhibit 3: Near term RoCE to be low

Clinker
(Mn tonne)

Grinding
(Mn tonne)

Bela

2.1

2.6

25

1.2

Q1FY15 EBITDA per tonne of prism

650

Sidhi

3.1

2.3

155

0.7

Difference between JP and Prim selling price

150

0.9

Cost benfit due to CPP

150

Estimated EBITDA per tonne for JPs MP plant

950

Higher dealer incentive and cost incurred by

UltraTech to gain Market share

150

Total

5.2

4.9

180

Surplus/Deficit

1.7

(2.4)

107

Total after expansion

5.2

7.3

180

1.4

Source: Company, Elara Securities Research

Near term EBITDA per tonne for UltraTech

Exhibit 2: Deal value close to replacement cost

INR Mn
Total EV or the deal
Surplus CPP(107mw @60 mn)
Cement EV
Balance capex for grinding unit 2.7 mn tonne @ INR
3000/ tonne
EV on expanded capacity
EV per tonne on expanded capacity

INR/tonne

54,000
6,420
47,580
7,140
54,720
7,516

EV per tonne of the deal

*Cash RoCE (%)
*RoCE (%)
Note: *at 100% Utilization levels
Source: Company, Elara Securities Research

800
7,516
10.6
5.6

Cement

Exhibit 1: Potential to expand capacity to 7.3 mn tonne

Source: Company, Elara Securities Research

Elara Securities (India) Private Limited

Ultratech Cement

Coverage History
3,000
16
2,500

15

10

11

2,000
8

1,500
1

14

1,000

13
12

18
17

500

Not Covered

Date

Rating

Target Price

Closing Price

02-Nov-2010 Reduce

INR1,139

INR1,122

25-Jan-2011 Accumulate

INR1,097

INR1,023

26-Apr-2011 Reduce

INR1,104

INR1,059

28-Jul-2011

INR 1,121

INR1026

15-Sep-2011 Reduce

INR1,147

INR1,147

20-Oct-2011 Accumulate

INR1,205

INR1,117

20-Jan-2012 Accumulate

INR1,340

INR1,214

23-Apr-2012 Accumulate

INR1,620

INR1,464

20-Jul-2012

Accumulate

INR1,712

INR1,569

10

19-Oct-2012 Accumulate

INR2,220

INR2,012

11

22-Apr-2013 Accumulate

INR2,175

INR1,870

12

11-Sep-2013 Accumulate

INR2,055

INR1,735

13

18-Oct-2013 Accumulate

INR2,100

INR1,965

14

20-Jan-2014 Accumulate

INR1,980

INR1,719

15

23-Apr-2014 Accumulate

INR2,365

INR2,170

16

18-Jul-2014

INR2,875

INR2,552

17

17-Oct -2014 Buy

INR2,840

INR2,319

18

23-Dec -2014 Accumulate

INR2,840

INR2,545

Accumulate

Accumulate

Oct-14

Jul-14

Apr-14

Jan-14

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

Oct-08

Jul-08

Apr-08

Covered

Guide to Research Rating

BUY

Absolute Return >+20%

ACCUMULATE

Absolute Return +5% to +20%

REDUCE

Absolute Return -5% to +5%

SELL

Absolute Return < -5%

Elara Securities (India) Private Limited

Elara Securities (India) Private Limited

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Global Markets Research

Disclosures & Confidentiality for non U.S. Investors

Any clarifications / queries on the proposal as well as any future communication regarding the proposal should be addressed
to Elara Securities (India) Private Limited / the company.

Disclaimer for non U.S. Investors

The information contained in this note is of a general nature and is not intended to address the circumstances of any
particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.
No one should act on such information without appropriate professional advice after a thorough examination of the
particular situation.

Elara Securities (India) Private Limited

Disclosures for U.S. Investors
The research analyst did not receive compensation from Ultratech Cement Limited.
Elara Capital Inc.s affiliate did not manage an offering for Ultratech Cement Limited.
Elara Capital Inc.s affiliate did not receive compensation from Ultratech Cement Limited in the last 12 months.
Elara Capital Inc.s affiliate does not expect to receive compensation from Ultratech Cement Limited in the next 3 months.

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