Ultratech Ltd. RESULT UPDATE

Transcription

1 Ultratech Ltd. RESULT UPDATE 26th April 2017

2 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 India Equity Institutional Research II Result Update - Q4FY17 II 26th April, 2017 CMP INR 4238 Target INR 4266 Potential Upside 1% Market Cap (INR Mn) Growth priced in; maintain HOLD Recommendation Hold Sector Cement 2 Company Overview Ultratech Cement Ltd. (UTCEM), a flagship company of Aditya Birla Group, is the largest cement manufacturer in India with a cement capacity of 67 MTPA and a CPP of 780 MW(including WHRS of 63 MW). The company has a PAN India presence and proposes to augment its capacity to 95.4 MTPA by end of FY19E. The company witnessed a subdued volume growth of ~5% over FY12-FY16 due to weak demand scenario. However, we expect the volumes to grow by ~20.6% over FY17-FY19E on account of acquisition of Jaiprakash Associates Ltd coupled with enhanced focus of Government on affordable housing and infrastructure development. We believe that Ultratech stands as the biggest beneficiary of demand revival on account of being the market leader with a market share of ~20%(post acquisition). MARKET DATA Shares outs (Mn) EquityCap (INR Mn) Mkt Cap (INR Mn) Wk H/L (INR) 4206/3050 Volume Avg (3m K) Face Value (INR) 10 Bloomberg Code UTCEM IN SHARE PRICE PERFORMANCE 130 Robust volume growth expected going ahead: UTCEM s grey cement volumes for Q4FY17 stood at MT which was up 0.3% Y-O-Y against an expected de-growth of ~6%. The total volume sales for FY17 stood at MT which was up 2% Y-O-Y. The company outperformed on the volume front despite demonetization and we expect a sharp recovery in the volumes from Q1FY18 onwards. The installed capacity for the company is set to increase to 95.4 MTPA by the end of FY19E as against the current capacity of 67 MTPA on account of acquisition of Jaiprakash Associates (~21.2 MTPA) and Greenfield expansion at Dhar in Southwest MP (~3.5 MTPA). The company witnessed a subdued volume growth of ~5% over FY12-FY16 due to weak demand scenario. However, we expect the volumes to grow by ~20.6% over FY17-FY19E on account of acquisition of Jaiprakash Associates Ltd coupled with enhanced focus of Government on affordable housing and infrastructure development. We expect the volumes to grow from MT in FY17 to 73 MT by FY19E translating into 20.6% CAGR. Likewise, we estimate UTCEM s revenues to surge from INR mn in FY17 to INR mn by FY19E growing at 25.06% over the same period Sensex Ultratech Efficiencies to sustain despite hike in input costs: EBITDA for the quarter stood at INR mn which was down 7.2% Y-O-Y primarily due to hike in power and fuel costs and other expenses. EBITDA margins stood at 17% as against our estimate of 15.86% due to lower than expected P&F costs. The company managed to offset the negative impact of hike in pet-coke prices by improving captive power plant efficiency and enhancing the share of waste heat recovery systems. Despite consistent increase in pet-coke prices, we expect the efficiencies to sustain going ahead on account of investment in increasing the WHRS capacity (to increase by 9MW), operating leverage and stability in cement prices on the back of healthy demand. We expect the EBITDA for UTCEM to grow by ~27.4% from INR mn in FY17 to INR mn by FY19E and EBITDA/ton to rise from INR 935 in FY17 to INR 1104 by FY19E. MARKET INFO SENSEX NIFTY 9307 Return ratios to remain suppressed on account of expansion : UTCEM s currently possesses net cash and cash equivalents of INR mn. However, post acquisition of assets of Jaiprakash Associates, we expect the debt to increase from INR mn in FY17 to INR mn by FY19E. Despite significant increase in debt, the net debt/equity for the company stands at 0.4 in FY19E which in our view is at comfortable levels. However, we expect the return ratios to remain suppressed with ROE increasing from 11.26% in FY17 to 12.60% by FY19E while ROCE decreasing marginally from 13.79% to 13.54% over the same period. Likewise, we expect the free cash flow generation to increase from INR mn in FY17 to INR mn by FY19E. SHARE HOLDING PATTERN (%) Particulars Mar 17 Dec 16 Sep 16 Promoters FIIs DIIs Others Total % 25.1% Revenue CAGR between FY 17 Volume CAGR between FY 17 and FY 19E and FY 19E

3 3 Valuation and Outlook: The company witnessed a subdued volume growth of ~5% over FY12-FY16 due to weak demand scenario. However, we expect the volumes to grow by ~20.6% over FY17-FY19E on account of acquisition of Jaiprakash Associates Ltd coupled with enhanced focus of Government on affordable housing and infrastructure development. With expected net debt of INR mn by FY19, the company trades at an EV/ton of $201 and EV/EBITDA of 15.79x on FY19 basis; which is at a premium compared to its large cap peers on account of significant market share(~20% post acquisition), superior brand, healthy balance sheet and high operating efficiencies. We value Ultratech Cement Ltd at an EV/EBITDA of 16x and EV/ton of $200 on FY19E and arrive at a target price of INR Maintain HOLD. Key Financials Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E Revenues EBITDA PAT EPS P/E (x) EV/EBITDA (x) Operating metrics Particulars (in INR) FY15 FY16 FY17 FY18E FY19E Realization/ton COGS cost/ton Employee cost/ton Power and fuel cost/ton Transportation and Handling cost/ton Other Expenses/ton EBITDA/ton

4 Management team: Name Designation Executive / Non-Executive Kumar Mangalam Birla Chairman Non-Executive K K Maheshwari Managing Director Executive Rajashree Birla Director Non-Executive G M Dave Director Non-Executive D D Rathi Director Non-Executive S K Chatterjee Company Secretary NA S B Mathur Director Non-Executive O P Puranmalka Non Executive Director Non-Executive Arun Adhikari Additional Director Non-Executive Sukanya Kripalu Additional Director Non-Executive Renuka Ramnath Additional Director Non-Executive Alka Bharucha Independent Director NA Atul Daga Whole Time Director & CFO NA 4 Share Holding Pattern: 7% 10% 22% 62% Promoters FIIs DIIs Others Top 5 Fund Holdings: Fund Name (as on Mar 2017) Market Value (INR Mn) No. of Shares UTI Mutual Fund Kotak Mahindra Mutual Fund SBI Mutual Fund Franklin Templeton Mutual Fund DSP BlackRock Mutual Fund

5 5 Q4FY17 Result Snapshot Particulars (Mn) Q4FY17 Q3FY16 Q4FY16 Q-o-Q Y-o-Y Total Sales % 3.0% Total Expenditure % 5.3% Cost of Raw Materials % 2.2% Employee Cost % 2.1% Power and Fuel Costs % 13.6% Transportation costs % 1.7% Other expenses % 10.4% Excise duty paid on sales % 2.6% PBIDT (Excl OI) % -7.2% EBITDA Margins (%) 17.0% 17.5% 18.9% -43bps -186bps Depreciation % -4.5% EBIT & Exceptional Item % -8.1% Exceptional Items Other Income % 71.3% EBIT % 0.3% Interest % 35.8% EBT % -3.5% Tax % 20.3% PAT % -11.8% PAT Margin (%) 9.2% 8.8% 10.72% 34bps -154bps EPS % -11.8% Key takeaways from Conference Call: FY17 ended on a positive note for Ultratech with a marginal volume growth of ~1% for Q4FY17 and ~2% for FY17. The year was one of the toughest for the cement industry on account of the liquidity crunch due to demonetization and hike in input costs. Management estimates flattish growth for the entire industry in FY17. On the regional front, South continued to do better; however, the droughts in Tamil Nadu and Kerala and political instability in Tamil Nadu has affected the demand in this quarter. The western market has started to pick up on account of institutional demand; metro and coastal road projects in cities like Mumbai is expected to drive cement demand. Northern markets remained sluggish on account of weak demand in housing segment especially in UP and Punjab while Eastern markets witnessed stagnant demand. Management expects the acquisition of Jaiprakash Associates to be completed within the next few months and will try to increase the capacity utilization of those assets in excess of 60% within the first 12 months of acquisition as compared to ~42% currently. On the input costs, the average pet-coke prices for the quarter stood at ~$87 as against ~$42 in Q4FY16 and ~$78 in Q3FY17. The current prices of pet-coke stand at $94; however it continues to be favorable on per cal basis. Going ahead, management believes that the uptick in demand has begun and expects the affordable housing scheme as one of the key demand driver for the cement industry with approximately 352 projects launched across 53 cities. In the infrastructure space, roads and irrigation continue to remain the key demand drivers.

6 Standalone Financials Profit & Loss (INR Mn) FY15 FY16 FY17 FY18E FY19E Total Sales COGS Employee Expenses Power and fuel Transportation cost Other Expenses Excise duty EBITDA D&A Other income EBIT Interest Expense PBT Tax Effective tax rate 30.64% 29.21% 30.30% 33.00% 33.00% PAT Balance Sheet (INR Mn) FY15 FY16 FY17 FY18E FY19E Equity Share Capital Reserves Net worth Total loans Capital Employed Net block Current Investments Inventories Sundry debtors Sundry creditors Cash and bank Total Current assets Total Current liabilities Capital Deployed Cash Flow (INR Mn) FY15 FY16 FY17 FY18E FY19E PAT Depreciation & Amortization (Incr)/Decr in Working Capital , , , , Cash Flow from Operating 40, , , , , (Incr)/ Decr in Gross PP&E -25, , , ,84, , Cash Flow from Investing -18, , , ,84, , (Decr)/Incr in Debt 10, , , ,42, , Dividend -2, , , , , Finance costs -5, , , , , Cash Flow from Financing -22, , , ,24, , Incr/(Decr) in Balance Sheet Cash , , , , Cash at the Start of the Year 2, , , , , Cash at the End of the Year 2, , , , ,

7 7 Ratio Analysis FY15 FY16 FY17 FY18E FY19E EBITDA/ton Volume (mn tons) Growth (%) Total Sales 13.03% 5.16% -0.65% 36.32% 14.72% EBITDA 9.81% 10.27% 8.50% 28.96% 25.85% PAT 6.45% 8.38% 22.89% % 51.32% Profitability (%) EBITDA Margin 15.97% 16.75% 18.29% 17.31% 18.98% NPM 7.59% 7.82% 9.67% 6.35% 8.38% Return ratios ROE 8.61% 10.31% 11.26% 9.37% 12.60% ROCE 10.74% 12.17% 13.79% 10.41% 13.54% Per share data EPS BPS , Valuations (x) P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton ($) Net Debt/EBITDA Net Debt/Equity Interest Coverage

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