Please refer to important disclosures at the end of this report 1 Y/E Mar (Rs cr) 1QFY2011 4QFY2010 % chg qoq 1QFY2010 % chg yoy Net revenue 1,810 1,923 (5.9) 1,969 (8.1) Operating profit 425 416 2.3 733 (41.9) OPM (%) 23.5 21.6 188bp 37.2 (1,371)bp Net profit 243 229 6.2 418 (41.9) Source: Company, Angel Research For 1QFY2011, Ultratech’s net realisations declined 4.9% due to its substantial exposure (~33%) to the southern region, which was affected by lower off-take and shortage of wagons. Further, the increase in operating expenditure resulted in a 1,371bp yoy decline in OPM to 23.5% (37.2%). Going ahead, we expect Ultratech to benefit from its pan-India presence due to the Samruddhi merger and not face a comparatively lower pricing pressure. We maintain Buy on the stock. Lower realisations, higher expenses pull down bottom line: Ultratech’s net sales declined by 8.1% yoy because of a 3.6% decline in despatches to 5.12mn tonnes and a 4.9% decline in realisations to Rs3,496/tonne. The company’s operating expenses for the quarter increased by 12% yoy to Rs1,384cr, lead by higher power costs, resulting in a substantial 41.9% decline in operating profits. Power costs increased due to higher open market power purchases and reduced coal supply through linkages. Outlook and valuation: We have incorporated the post-merger numbers in our estimates and expect Ultratech to post a 45.3% CAGR in top line over FY2010–12E aided by higher volumes. At the current levels, the stock is trading at an EV/EBITDA of 6.7x and EV/tonne of US $94 based on FY2012E estimates. We have valued Ultratech at an average target EV/EBITDA of 7x and an EV/tonne of US $105/tonne to arrive at a fair value of Rs1,087. We maintain a Buy view on the stock. Key Financials Y/E March ( Rs cr) FY2009 FY2010E FY2011E FY2012E Net Sales 6,383 7,103 13,022 15,003 % chg 15.9 11.3 83.3 15.2 Net Profit 977 1,093 1,633 2,042 % chg (3.0) 11.9 49.4 25.1 OPM (%) 26.7 28.5 25.4 27.0 FDEPS(Rs) 78.5 87.8 59.6 74.5 P/E (x) 11.0 9.8 14.5 11.6 P/BV (x) 3.0 2.3 1.9 1.5 RoE (%) 31.0 26.6 18.8 14.0 RoCE (%) 24.2 24.2 19.3 15.2 EV/Sales (x) 2.0 1.7 2.1 1.8 EV/tonne 119 112 107 94 Installed cap (mtpa) 22 23 52 57 EV/EBITDA 7.5 6.1 8.2 6.7 Source: Company, Angel Research; Post merger numbers for FY2011E and FY2012E BUY CMP Rs864 Target Price Rs1,087 Investment Period 12 Months Stock Info Sector Bloomberg Code Shareholding Pattern (%) Promoters 54.8 MF / Banks / Indian Fls 18.7 FII / NRIs / OCBs 11.6 Indian Public / Others 14.9 Abs. (%) 3m 1yr 3yr Sensex 1.8 16.1 17.1 Ultratech (11.1) 7.8 (3.7) Face Value (Rs) BSE Sensex Nifty Reuters Code 10,760 0.7 1172/669 41890 Cement Avg. Daily Volume Market Cap (Rs cr) Beta 52 Week High / Low 10 17,868 5,368 ULTC.BO UTCEM@IN Rupesh Sankhe 022-40403800; Ext 319 [email protected]V Srinivasan 022-40403800; Ext 330 [email protected]Ultratech Cement Performance Highlights 1QFY2011 Result Update | Cement July 30, 2010
Transcript
Please refer to important disclosures at the end of this report 1
For 1QFY2011, Ultratech’s net realisations declined 4.9% due to its substantial exposure (~33%) to the southern region, which was affected by lower off-take and shortage of wagons. Further, the increase in operating expenditure resulted in a 1,371bp yoy decline in OPM to 23.5% (37.2%). Going ahead, we expect Ultratech to benefit from its pan-India presence due to the Samruddhi merger and not face a comparatively lower pricing pressure. We maintain Buy on the stock.
Lower realisations, higher expenses pull down bottom line: Ultratech’s net sales declined by 8.1% yoy because of a 3.6% decline in despatches to 5.12mn tonnes and a 4.9% decline in realisations to Rs3,496/tonne. The company’s operating expenses for the quarter increased by 12% yoy to Rs1,384cr, lead by higher power costs, resulting in a substantial 41.9% decline in operating profits. Power costs increased due to higher open market power purchases and reduced coal supply through linkages.
Outlook and valuation: We have incorporated the post-merger numbers in our estimates and expect Ultratech to post a 45.3% CAGR in top line over FY2010–12E aided by higher volumes. At the current levels, the stock is trading at an EV/EBITDA of 6.7x and EV/tonne of US $94 based on FY2012E estimates. We have valued Ultratech at an average target EV/EBITDA of 7x and an EV/tonne of US $105/tonne to arrive at a fair value of Rs1,087. We maintain a Buy view on the stock.
Key Financials
Y/E March ( Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 6,383 7,103 13,022 15,003
% chg 15.9 11.3 83.3 15.2
Net Profit 977 1,093 1,633 2,042
% chg (3.0) 11.9 49.4 25.1
OPM (%) 26.7 28.5 25.4 27.0
FDEPS(Rs) 78.5 87.8 59.6 74.5
P/E (x) 11.0 9.8 14.5 11.6
P/BV (x) 3.0 2.3 1.9 1.5
RoE (%) 31.0 26.6 18.8 14.0
RoCE (%) 24.2 24.2 19.3 15.2
EV/Sales (x) 2.0 1.7 2.1 1.8
EV/tonne 119 112 107 94
Installed cap (mtpa) 22 23 52 57
EV/EBITDA 7.5 6.1 8.2 6.7
Source: Company, Angel Research; Post merger numbers for FY2011E and FY2012E
Reported PAT 243 229 6.2 418 (41.9) 1,093 977 11.9
PATM 13.4 11.9
21.2
15.4 15.2
EPS (Rs) 19 18 6.2 34 (41.9) 88 78 11.9
Adjusted PAT 243 229 6.2 418 (41.9) 1,093 977 11.9
Source: Company, Angel Research
Exhibit 2: Financial performance trend
Source: Company, Angel Research
10
15
20
25
30
35
40
0
500
1,000
1,500
2,000
2,500
4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Net Sales Net Profit OPM
(Rs cr) (%)
Ultratech Cement | 1QFY2011 Result Update
July 30, 2010 3
Exhibit 3: 1QFY2011 - Actual v/s Angel estimates (Rs cr) Actual Estimates Variation (%)
Net sales 1,810 2,041 (11.3)
Operating profit 425 478 (11.0)
Net profit 243 277 (12.3)
Source: Company, Angel Research
Operational performance
For 1QFY2010, the company’s realisation per tonne fell by 4.9% on a yoy basis to Rs3,496. The company’s net realisations were down due to its substantial exposure (~33%) to the southern region, which was affected by lower off-take and shortage of wagons. As per management, the western and eastern regions were also constrained on account of logistical issues and partial disruptions in operations. Further, raw-material costs per tonne grew by 8.3% yoy. Freight costs per tonne rose by 21.9% yoy due the increase in diesel costs. Net profit per tonne for the quarter stood at Rs474, down 39.7% on a yoy basis.
Exhibit 4: Operating performance trend
Particulars (Rs) 1QFY11 4QFY10 1QFY10 %chg
yoy % chg
qoq Realisation/tonne 3,496 3,373 3,678 (4.9) 3.6
Raw-material cost/tonne 498 638 460 8.3 (22.0)
Power & fuel cost /tonne 816 645 721 13.1 26.5
Freight cost/tonne 700 616 574 21.9 13.7
Operating profit/tonne 831 735 1350 (38.5) 13.1
Depreciation/tonne 198 175 177 12.0 13.0
Net profit/tonne 474 404 785 (39.7) 17.4
Source: Company, Angel Research
Ultratech Cement | 1QFY2011 Result Update
July 30, 2010 4
Investment Arguments
To emerge as India’s largest cement manufacturer post the Samruddhi merger: After the merger of Samruddhi (erstwhile cement division of Grasim) with itself, Ultratech is set to become India’s largest cement player having pan-India presence with a capacity of 48mtpa. The company is in the process of acquiring the overseas cement assets of Dubai-based ETA Star, which would take its overall capacity to 52mn tonnes. ETA Star’s manufacturing facilities include a 2.3mtpa clinkerisation plant and a 2.1mtpa grinding capacity in the UAE, and 0.4mtpa and 0.5mtpa of grinding facilities in Bahrain and Bangladesh, respectively. In addition, Ultratech is set to embark on its next round of expansion and the company has envisaged a capital outlay of Rs5,600cr to enhance its capacity by 9.2mtpa. The expansion would come by setting up brown-field expansion at the Chhattisgarh and Karnataka plants.
Pan-India presence to insulate Ultratech from price volatility: Ultratech enjoys a good brand equity and would have an even more strong brand equity post the Samruddhi merger and would be insulated from wide variation in regional demand and price volatility. We believe Ultratech would enjoy synergic benefits in terms of superior operating efficiencies post the merger due to its larger size.
Increased use of captive power to protect margins: Currently, Ultratech has 504MW of capacity. The company is setting up another 86MW of capacity which, when commissioned, would cater to 80% of its overall power requirements in FY2012E. Besides, an increase in blending aided by its grinding unit, will likely result in increased overall efficiency and lower power consumption from the current 87units/tonne to about 80units/tonne.
Strong balance sheet: Ultratech has a strong balance sheet with a net debt to equity of 0.33x and cash balance of Rs112cr. We expect the company to generate strong cash flows over the next few years, which would help Ultratech to fund its expansion plans through internal accruals.
Ultratech Cement | 1QFY2011 Result Update
July 30, 2010 5
Outlook and valuation: We have incorporated the post-merger numbers in our estimates and expect the company to register a 45.3% CAGR in top line over FY2010–12E, aided by higher volumes. We expect Ultratech to benefit from its pan-India presence and not face a major price correction. At the current levels, the stock is trading at an EV/EBITDA of 6.7x and EV/tonne of US $94 based on FY2012E estimates. We have valued Ultratech at an average target EV/EBITDA of 7x and an EV/tonne of US $105/tonne to arrive at a fair value of Rs1,087. We maintain a Buy view on the stock.
Exhibit 5: Target valuation on FY2012 estimates Target EV/EBITDA 7x Target EV/tonne US $105
EV (Rs cr) 28,344 EV (Rs cr) 29,195
CPP*(580 MW) 2,320
Market cap (Rs cr) 29,467 Market cap (Rs cr) 30,138
Payables (days) 69 98 98 91 71 90 Working capital cycle (ex-cash) (days)
10 1 (2) 3 (4) (2)
Solvency ratios (x) Net debt to equity 0.8 0.6 0.6 0.3 0.3 0.2
Net debt to EBITDA 1.1 1.0 1.2 0.8 1.1 0.8 Interest Coverage (EBIT / Interest)
13.7 18.1 11.0 13.9 9.9 11.5
Ultratech Cement | 1QFY2011 Result Update
July 30, 2010 11
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Disclosure of Interest Statement Ultratech Cement 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock Yes 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors. Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%)
