Higher realisations drove the show; Price led recovery still away April 25, 2018 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Amit Khimesra amitkhimesra@plindia.com +91 22 66322244 Rating Accumulate Price Rs4,136 Target Price Rs4,500 Implied Upside 9.4% Sensex 34,501 Nifty 10,571 (Prices as on April 25, 2018) Trading data Market Cap. (Rs bn) 1,127.6 Shares o/s (m) 274.1 3M Avg. Daily value (Rs m) 872.4 Major shareholders Promoters 62.16% Foreign 22.14% Domestic Inst. 5.55% Public & Other 10.15% Stock Performance (%) 1M 6M 12M Absolute 4.2 (8.3) (2.8) Relative (1.6) (12.8) (18.0) How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2019 104.1 176.6 41.1 2020 141.5 NA NA Price Perf. (RIC: ULTC.BO, BB: UTCEM IN) (Rs) 4,800 4,600 4,400 4,200 4,000 3,800 3,600 3,400 Apr 17 Jun 17 Source: Bloomberg Aug 17 Oct 17 Dec 17 Feb 18 Apr 18 Ultratech (UTCEM) reported Q4FY18 earnings above our expectation on account of better realisations. Acquired plants of JPA (17mtpa) continued to ramp up ahead of schedule with utilisation at 75% in Q4 and exit rate of 84 85%. However, we cut our earnings estimates by 10%/12% for FY19E/FY20E factoring in lower realisations (on account of intense competition and overcapacity). Admittedly, earnings would remain under pressure in near term but given the strong pipeline of capacity addition (11mn tonnes (t) in next two years), smooth merger of JPA plants and quality operations, UTCEM would be well poised to exploit the price led recovery. We maintain Accumulate with TP of Rs4,500, EV/EBITDA of 16x FY20E. Improved region mix and narrowing of gap with peers led higher realisations: Volumes rose 31% YoY at 18.5m (PLe:18.1mn) t on the back of 23%/8% inorganic/organic growth. Driven by increase in share of volumes in central region and reduction in discount to its peers, realisations rose 4% YoY/Rs193 ( 2% QoQ/Rs97) at Rs4,811/t above our estimate of Rs4,733. Cost/t rose 5% YoY/Rs174 to Rs3,954 (PLe:Rs3,968) owing to 17%/6% increase in energy/freight cost. EBITDA/t rose 2% YoY at 857/t (PLe:Rs765/t). Hence, EBITDA rose 34% YoY/ 37% QoQ at Rs15.8bn (PLe:Rs13.8bn). Impacted by increase in depreciation/interest cost, Adjusted PAT fell 3% YoY at Rs6.3bn (PLe:Rs5.3bn). Key highlights of con call: 1) Cost of production of acquired plants higher by Rs125/t v/s own plants; expects to narrow down the gap on the back of change in fuel mix and higher efficiencies 2) East/West/North/Central/South based plants operated at 90%/82%/80%/76%/70% in Q4 3) 2.2mn clinker unit at Dalla (UP)/4mn grinding unit at Bara (UP)/3.5mn cement unit at Pali (Rajasthan) are expected to commission by Sep18/Q1FY20/FY20 4) All India demand grew by 8% YoY in FY18 5) Expecting capacity addition of 20 25mt in FY19 FY20 6) Petcoke cost to increase by 10% QoQ to US$110 in Q1FY19 (Up 20 22% QoQ in Q4) Key financials (Y/e March) 2017 2018 2019E 2020E Revenues (Rs m) 250,916 309,867 368,878 419,403 Growth (%) 0.9 23.5 19.0 13.7 EBITDA (Rs m) 49,291 56,295 66,495 80,117 PAT (Rs m) 27,149 25,413 28,564 38,835 EPS (Rs) 98.9 92.6 104.1 141.5 Growth (%) 9.5 (6.4) 12.4 36.0 Net DPS (Rs) 10.0 10.5 11.0 11.5 Profitability & Valuation 2017 2018 2019E 2020E EBITDA margin (%) 19.6 18.2 18.0 19.1 RoE (%) 11.7 10.0 10.3 12.6 RoCE (%) 9.6 8.6 8.1 9.8 EV / EBITDA (x) 24.2 23.9 20.0 16.2 EV / Tonne ($) 228.3 205.7 187.8 176.9 PE (x) 41.6 44.4 39.5 29.1 P / BV (x) 4.6 4.2 3.9 3.5 Net dividend yield (%) 0.2 0.3 0.3 0.3 Source: Company Data; PL Research Q4FY18 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Exhibit 1: EPS revised downward by 10%/12% for FY19e/FY20e FY19E FY20E Earlier Post revision % change Earlier Post revision % change Revenue (Rs mn) 380,314 368,878 (3.0) 438,178 419,403 (4.3) EBITDA (Rs mn) 72,362 66,495 (8.1) 89,262 80,117 (10.2) PAT (Rs mn) 31,752 28,564 (10.0) 44,110 38,835 (12.0) EPS (Rs) 115.7 104.1 (10.0) 160.7 141.5 (12.0) Volumes (mn tonnes) 72.1 70.7 (2.0) 80.5 78.0 (3.2) Realisation/t 5,026 4,966 (1.2) 5,197 5,128 (1.3) Total Cost/t 4,052 4,055 0.1 4,120 4,132 0.3 EBITDA/t 974 911 (6.5) 1,077 995 (7.6) Source: PL Research Exhibit 2: Q4FY18 Result Overview (Rs m) Factoring in lower realisations and reduced volumes estimates, we revised downward our EPS estimates for FY19e/FY20E by 10%/12%. Our EBITDA estimates stand reduced by 8%/10%. Y/e March Q4FY18 Q4FY17 YoY gr. (%) Q3FY18 FY18E FY17 YoY gr. (%) Net Sales 88,810 64,956 36.7 74,710 2,93,630 2,36,115 24.4 Raw Material 14,786 11,508 28.5 13,310 46,797 40,245 16.3 % of Net Sales 16.6 17.7 17.8 15.9 17.0 Staff Costs 4,192 3,449 21.5 4,628 17,062 14,134 20.7 % of Net Sales 4.7 5.3 6.2 5.8 6.0 Power & Fuel 18,980 11,543 64.4 15,093 59,595 39,266 51.8 % of Net Sales 21.4 17.8 20.2 20.3 16.6 Freight 22,750 16,645 36.7 18,634 72,816 58,452 24.6 % of Net Sales 25.6 25.6 24.9 24.8 24.8 Other Expenses 12,289 10,027 22.6 11,541 42,798 37,128 15.3 % of Net Sales 13.8 15.4 15.4 14.6 15.7 Total Expenditure 72,997 53,171 37.3 63,207 2,39,068 1,89,225 26.3 EBITDA 15,813 11,786 34.2 11,503 54,562 46,890 16.4 Margin (%) 17.8 18.1 15.4 18.6 19.9 Depreciation 4,806 3,357 43.2 4,744 17,636 12,679 39.1 Other income 2,274 3,397 (33.1) 1,706 9,180 9,399 (2.3) EBIT 13,281 11,826 12.3 8,465 46,106 43,610 5.7 Interest 3,348 1,529 118.9 3,472 11,863 5,714 107.6 PBT 9,934 10,297 (3.5) 4,993 34,243 37,896 (9.6) Extraordinary income/(expense) (2,263) (137) 1,038 (1,225) (137) PBT (After EO) 7,671 10,160 (24.5) 6,031 33,018 37,760 (12.6) Tax 2,791 3,276 (14.8) 1,816 10,706 11,482 (6.8) % PBT 36.4 32.2 30.1 32.4 30.4 Reported PAT 4,880 6,883 (29.1) 4,215 22,313 26,277 (15.1) Adjusted PAT 6,319 6,976 (9.4) 3,489 23,027 26,370 (12.7) Source: Company Data, PL Research April 25, 2018 2
Exhibit 3: Operating Metrics Y/e March Q4FY18 Q4FY17 YoY gr. (%) Q3FY18 FY18E FY17 YoY gr. (%) Volume (m te) 18.5 14.1 31.2 15.9 60.6 50.2 20.8 Net Blended Realisations (Rs/te) 4,811 4,618 4.2 4,714 4,843 4,706 2.9 EBITDA/ te (Rs/te) 857 838 2.2 726 900 935 (3.7) Source: Company Data, PL Research April 25, 2018 3
Income Statement (Rs m) Net Revenue 250,916 309,867 368,878 419,403 Raw Material Expenses 44,926 54,052 63,918 72,698 Gross Profit 205,990 255,815 304,960 346,705 Employee Cost 15,223 17,990 19,696 21,573 Other Expenses 141,476 181,530 218,769 245,015 EBITDA 49,291 56,295 66,495 80,117 Depr. & Amortization 13,484 18,207 20,393 21,509 Net Interest 6,401 12,490 13,761 12,561 Other Income 9,314 10,807 8,512 9,420 Profit before Tax 38,721 36,405 40,853 55,467 Total Tax 11,586 10,876 12,172 16,515 Profit after Tax 27,135 25,529 28,680 38,951 Ex Od items / Min. Int. (14) 116 116 116 Adj. PAT 27,149 25,413 28,564 38,835 Avg. Shares O/S (m) 274.5 274.5 274.5 274.5 EPS (Rs.) 98.9 92.6 104.1 141.5 Cash Flow Abstract (Rs m) C/F from Operations 49,935 38,898 53,879 66,172 C/F from Investing (24,685) (47,913) (22,244) (20,030) C/F from Financing (25,350) (31,460) (32,897) (31,862) Inc. / Dec. in Cash (100) (40,476) (1,262) 14,280 Opening Cash 834 734 (39,742) (41,004) Closing Cash 734 (39,742) (41,004) (26,724) FCFF 29,895 (141,981) 28,627 17,804 FCFE 8,479 (30,684) 13,127 2,304 Key Financial Metrics Growth Revenue (%) 0.9 23.5 19.0 13.7 EBITDA (%) 6.5 14.2 18.1 20.5 PAT (%) 9.6 (6.4) 12.4 36.0 EPS (%) 9.5 (6.4) 12.4 36.0 Profitability EBITDA Margin (%) 19.6 18.2 18.0 19.1 PAT Margin (%) 10.8 8.2 7.7 9.3 RoCE (%) 9.6 8.6 8.1 9.8 RoE (%) 11.7 10.0 10.3 12.6 Balance Sheet Net Debt : Equity 0.3 0.8 0.7 0.5 Net Wrkng Cap. (days) (272) (171) (128) (101) Valuation PER (x) 41.6 44.4 39.5 29.1 P / B (x) 4.6 4.2 3.9 3.5 EV / EBITDA (x) 24.2 23.9 20.0 16.2 EV / Sales (x) 4.7 4.3 3.6 3.1 Earnings Quality Eff. Tax Rate 29.9 29.9 29.8 29.8 Other Inc / PBT 24.1 29.7 20.8 17.0 Eff. Depr. Rate (%) 4.9 4.1 4.4 4.3 FCFE / PAT 31.2 (120.7) 46.0 5.9 Source: Company Data, PL Research. Balance Sheet Abstract (Rs m) Shareholder's Funds 243,916 266,025 291,119 326,319 Total Debt 84,745 196,042 180,542 165,042 Other Liabilities 27,921 31,635 35,756 41,297 Total Liabilities 356,582 493,702 507,417 532,658 Net Fixed Assets 260,393 424,620 431,502 435,658 Goodwill 10,851 10,851 10,851 10,851 Investments 66,905 66,905 66,905 66,905 Net Current Assets 18,335 (8,938) (2,271) 18,648 Cash & Equivalents 22,488 (17,988) (19,250) (4,971) Other Current Assets 61,452 78,838 91,820 102,328 Current Liabilities 65,605 69,788 74,841 78,709 Other Assets 98 99 99 99 Total Assets 356,582 493,537 507,086 532,162 Quarterly Financials (Rs m) Y/e March Q2FY18 Q3FY18 Q4FY18 Net Revenue 64,780 74,710 88,810 EBITDA 12,580 11,503 15,813 % of revenue 19.4 15.4 17.8 Depr. & Amortization 4,988 4,744 4,806 Net Interest 3,759 3,472 3,348 Other Income 2,614 1,706 2,274 Profit before Tax 6,447 6,031 7,671 Total Tax 2,135 1,816 2,791 Profit after Tax 4,312 3,177 7,142 Adj. PAT 4,312 4,215 4,880 Key Operating Metrics Grey Cement Vol. (mn te) 47.6 58.5 68.3 75.6 White Cement Vol. (mn te) 0.6 0.7 0.8 0.8 Clinker Sales Vol. (mn te) Grey Cement Real. (Rs/te) 4,151.0 4,320.1 4,441.1 4,605.4 White Cement Real. (Rs/te) 10,873.4 11,308.4 11,760.7 12,231.1 Clinker Real. (Rs/te) 2,651.0 2,820.1 2,941.1 3,105.4 Blended EBITDA/tonne (Rs) 959.2 910.6 921.4 1,005.6 RM cost (Rs/ te) 714.6 720.5 752.4 788.1 Power, Oil & Fuel (Rs/ te) 809.1 924.1 1,016.7 1,031.4 Freight Chrgs. (Rs/ te) 1,004.6 1,014.6 1,034.9 1,055.6 Source: Company Data, PL Research. April 25, 2018 4
Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai 400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 Rating Distribution of Research Coverage PL s Recommendation Nomenclature % of Total Coverage 50% 40% 30% 20% 10% 0% 45.0% 44.2% 10.9% 0.0% BUY Accumulate Reduce Sell BUY : Over 15% Outperformance to Sensex over 12 months Accumulate : Outperformance to Sensex over 12 months Reduce : Underperformance to Sensex over 12 months Sell : Over 15% underperformance to Sensex over 12 months Trading Buy : Over 10% absolute upside in 1 month Trading Sell : Over 10% absolute decline in 1 month Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly DISCLAIMER/DISCLOSURES ANALYST CERTIFICATION We/I, Mr. Kamlesh Bagmar (CA), Mr. Amit Khimesra (MBA), Research Analysts, 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. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as PL ) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document. PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014 PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities. PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company. PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report. PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report. PL or its associates might have received compensation from the subject company in the past twelve months. PL or its associates might have managed or co managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months. PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report. PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report. It is confirmed that Mr. Kamlesh Bagmar (CA), Mr. Amit Khimesra (MBA), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest. PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. DISCLAIMER/DISCLOSURES (FOR US CLIENTS) ANALYST CERTIFICATION The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report Terms & conditions and other disclosures: This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a 6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a 6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker dealer, Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer. April 25, 2018 5