Q4FY2011 Update Sector: Cement BSE Sensex: 19,545

RESEARCH

ULTRATECH CEMENT
Realisation Growth Boosts Profits
UltraTech Cement's (UTCEM) Q4FY11 results were ahead of expectation as better realisations and tax write-back boosted profits. While quarterly volumes crossed the 10mn mt mark, blended realisations grew 10.2% QoQ to Rs4.2k/mt. Revenues stood at Rs45.6bn. Contrary to expectations of an increase, power & fuel costs declined which in tandem with better realisations led to a sequential doubling in adjusted profits to Rs6.1bn as against our estimate of Rs5.1bn. A tax write back of Rs1.2bn further boosted reported profits to Rs7.3bn. Volumes stagnant: Adjusting for the merger of Samruddhi Cement, total volumes for the company remained flat YoY at 10.4mn mt. While northern region witnessed a pickup, southern and central regions were sluggish. White cement dispatches too were flat at 0.15mn mt. Blended realisations jumped 10.2% QoQ to Rs4.2k/mt as north and west regions witnessed a substantial price increase. Net revenues at Rs45.6bn were ~8% higher on a proforma basis. Lower power & fuel cost boosts margins: The recent spike in international coal prices was expected to inflate the power bill. However, power & fuel costs per mt declined 2.5% QoQ. This along with growth in realisations translated to a 420bps QoQ expansion in margins to 23.9% as against our estimate of 22.7%. EBITDA/ mt was 34% higher QoQ at Rs1,000. Additionally, a lower tax rate (850bps QoQ) led to QoQ doubling of adjusted profit to Rs6.2bn. Capex plan: The company reiterated its capex of Rs100bn to be incurred over the next three years. Capacity of 9.2mn mt will be added through units at Chhattisgarh and Karnataka. Outlook: We have revised our volume estimates downwards by 3.5% and expect a volume of 40mn mt in FY12. We expect margin to contract going forward owing to increase in imported as well as domestic coal prices. However, due to a lower tax rate our FY12 earnings estimate has increased 2.5% to Rs70.7. We have introduced FY13E earnings of Rs94.5. VALUATIONS AND RECOMMENDATION We are rolling over valuations to FY13. The stock is currently trading at 5.5x FY13E EV/EBITDA and EV/mt of USD118. We maintain a 'BUY' rating on the stock with a target price of Rs1,318 discounting FY13E EBITDA 7x.
vineet.hetamasaria@pinc.co.in Nikhil Deshpande nikhil.deshpande@pinc.co.in Tasmai Merchant tasmai.merchant@pinc.co.in

BUY CMP Rs1,061 TP Rs1,318

26 April 2011 Vineet Hetamasaria, CFA +91-22-6618 6388

+91-22-6618 6339

+91-22-6618 6377

QUARTERLY SNAPSHOT
Sep-10 Net Sales YoY Gr. (%) Op. Profits OPM (%) Adj. Net Profit YoY Gr. (%) 32,445 108.3 4,376 13.5 1,158 (53.8) Dec-10 37,409 124.1 7,334 19.6 3,086 57.4

(Rs mn)

Quarter Ended

Mar-11 45,559 137.0 10,868 23.9 6,116 167.6

Result Review

STOCK DATA
Market Cap Book Value per share Eq Shares O/S (FV Rs10) Free Float Avg Traded Value (6 mnths) 52 w eek High/Low Bloomberg Code Reuters Code Rs291bn Rs453.8 274mn 37% Rs239mn Rs1175/820 UTCEM IN UTCL.BO

PERFORMANCE (%)
1M Absolute Relative 1.2 (2.6) 3M 4.3 2.2 12M (3.1) (12.3)

KEY FINANCIALS
FY09 Net Sales YoY Gr. (%) Op. Profits Op. Marg. (%) Adjusted Net Profit YoY Gr. (%) 63,830 15.9 17,323 27.4 9,488 (5.8) 76.2 25.4 30.1 13.9 17.1 146 FY10 70,497 10.4 19,711 28.6 10,932 15.2 87.8 25.2 26.6 12.1 14.2 128 FY11P 132,099 87.4 25,424 20.1 12,787 17.0 54.0 17.3 16.7 19.6 10.8 134 FY12E 170,480 29.1 36,983 22.4 19,376 51.5 70.7 18.2 16.7 15.0 7.3 125

Rs mn

FY13E 191,680 12.4 45,988 24.7 25,901 33.7 94.5 21.4 19.0 11.2 5.5 118
1

RELATIVE PERFORMANCE
UTCEM 1,300 1,150 1,000 850 700 Apr-10 BSE (Rebased)

KEY RATIOS
Dil. EPS (Rs) ROCE (%) RoE (%) PER (x) EV/EBITDA (x) EV/MT (USD)

Jul-10

Oct-10

Jan-11

Apr-11

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RESEARCH
UltraTech Cement

Financial Table
Mar-11 Net Sales EBITDA EBITDA Margins (%) Other Income Interest Depreciation PBT Tax Reported PAT Adjusted PAT Adjusted EPS (Rs) 45,559 10,868 23.9 436 829 2,267 8,208 2,091 7,268 6,116 22.3 Mar-10 19,225 4,158 21.6 127 285 993 3,007 721 2,286 2,286 18.4 YoY% 137.0 161.3 220 bps 244.6 191.4 128.2 172.9 190.0 217.9 167.6 21.6 Dec-10 37,409 7,334 19.6 350 818 2,191 4,675 1,589 3,190 3,086 11.3 QoQ% 21.8 48.2 420 bps 24.7 1.4 3.5 75.6 31.6 127.9 98.2 98.2 FY11 133,510 26,834 20.1 1,457 2,771 7,657 17,863 5,075 14,044 12,789 54.0 FY10 71,185 20,368 28.6 570 1,175 3,881 15,882 4,949 10,933 10,933 87.8

(Rs mn)
YoY % 87.6 31.7 -850 bps 155.6 135.8 97.3 12.5 2.5 28.5 17.0 (38.5)

Rs Per MT
Mar-11 Net Realisations Raw Material Costs Purchase of Traded Goods Pow er & Fuel Costs Employee Expenses Freight & Handling Expense Other Expenditure EBITDA 4,222 550 36 895 201 760 773 1,007 Mar-10 3,417 591 52 649 117 620 650 739 YoY% 23.6 (6.8) (31.2) 37.9 71.3 22.7 18.9 36.3 Dec-10 3,832 498 29 918 192 746 698 751 QoQ% 10.2 10.4 24.9 (2.5) 4.6 1.9 10.8 34.0 FY11 3,863 504 35 903 192 740 711 776 FY10 3,552 466 32 709 125 615 589 1,016 YoY % 8.7 8.3 11.1 27.4 53.8 20.3 20.7 (23.6)

Proforma Volumes for UltraTech + Samruddhi

Mar-11 Cement Capacity Cement Production Capacity Utilisation (%) Total Sales 12.19 10.40 85.3 10.79 Mar-10 12.19 10.24 84.0 10.99 YoY% 0.0 1.6 130 bps (1.8) Dec-10 12.19 9.31 76.4 9.80 QoQ% 0.0 11.7 890 bps 10.1 FY11 48.75 38.24 78.4 40.08 FY10 45.65 37.02 81.1 39.79

(mn MT)
YoY % 6.8 3.3 -270 bps 0.7

Proforma Financial Performance for UltraTech + Samruddhi

Mar-11 Net Sales EBITDA EBITDA Margins (%) EBIT 45,559 11,304 24.8 9,037 Mar-10 42,060 10,700 25.4 8,580 YoY% 8.3 5.6 -60 bps 5.3 Dec-10 37,409 7,684 20.5 5,493

(Rs mn)
QoQ% 21.8 47.1 430 bps 64.5

vineet.hetamasaria@pinc.co.in

nikhil.deshpande@pinc.co.in

RESEARCH
UltraTech Cement

Sales Volume*
Cement Volume (LHS) 12.0 10.5 (mn mt) 9.0 7.5 6.0 Dec-09 Dec-10 Sep-09 Sep-10 Mar-10 Mar-11 Jun-09 Jun-10 Vol Grow th (RHS) 24 16

Realisation Trend*
Av g Blended Realisation (LHS) 4,200 3,900 (Rs/mt) 3,600 3,300 3,000 Dec-09 Dec-10 Sep-09 Sep-10 Mar-10 Mar-11 Jun-09 Jun-10 Realisation grow th (RHS) 20 10 (%)
(%)
3

(%)

8 0

(10) (20)

(8)

Net Sales Trend*

Total Sales (LHS) 50,000 44,000 (Rs mn) 38,000 32,000 26,000 20,000 Dec-09 Dec-10 Sep-09 Sep-10 Mar-10 Mar-11 Jun-09 Jun-10 (4) (16) (%) 8 Sales grow th (RHS) 32 20

EBITDA Trend*
EBITDA (LHS)) 16,000 12,000 (Rs mn) 8,000 4,000 0 Dec-09 Dec-10 Sep-09 Mar-10 Sep-10 Mar-11 Dec-10 Mar-11 Jun-09 Jun-10 EBITDA grow th (RHS) 80 40 0

(40) (80)

EBIT Trend*
EBIT (LHS) 16,000 12,000 (Rs mn) 8,000 4,000 0 Dec-09 Dec-10 Sep-09 Sep-10 Mar-10 Mar-11 Jun-09 Jun-10 EBIT grow th (RHS) 100 50

EBITDA Margin Trend *

42.0

34.0

(%)

(%)

26.0

(50) (100)

18.0

10.0 Dec-09 Sep-09 Mar-10 Sep-10 Jun-09 Jun-10

* All graphs are on a like to like basis adjusting for merger with Grasim (Samruddhi) Cement business

vineet.hetamasaria@pinc.co.in

nikhil.deshpande@pinc.co.in

RESEARCH

UltraTech Cement
Year Ended March (Figures in Rs mn)

Income Statement Net Sales Growth (%) Operating profit Other operating income EBITDA Growth (%) Depreciation Other income EBIT Interest paid PBT (before E/o items) Tax provision E/o Income / (loss) Net profit Adjusted net profit Growth (%) Diluted EPS (Rs) Diluted EPS Growth (%)

FY09 63,830 15.9 17,323 269 17,592 (1.7) (3,230) 225 14,587 (1,255) 13,332 (3,844) 9,488 9,488 (5.8) 76.2 (5.8)

FY10 70,497 10.4 19,711 644 20,354 15.7 (3,881) 584 17,057 (1,175) 15,882 (4,949) 10,932 10,932 15.2 87.8 15.2

FY11P 132,099 87.4 25,424 1,410 26,833 31.8 (7,657) 1,457 20,633 (2,771) 17,862 (5,075) 1,255 14,042 12,787 17.0 54.0 (38.5)

FY12E 170,480 29.1 36,983 1,579 38,561 43.7 (9,170) 1,630 31,021 (3,340) 27,680 (8,304) 19,376 19,376 51.5 70.7 30.9

FY13E 191,680 12.4 45,988 1,737 47,724 23.8 (9,726) 1,823 39,821 (2,820) 37,001 (11,100) 25,901 25,901 33.7 94.5 33.7

Cash Flow Statement Pre-tax profit Depreciation Total tax paid Chg in working capital Other operating activities Cash flow from oper. (a) Capital expenditure Chg in investments Other investing activities Cash flow from inv. (b) Free cash flow (a+b) Equity raised/(repaid) Debt raised/(repaid) Chg in Minorities int. Dividend (incl. tax) Other financing activities Cash flow from fin. (c) Net chg in cash (a+b+c)

FY09 13,332 2,932 (1,994) (947) 13,323 (8,226) (11) (8,236) 5,087 9 4,011 (724) 283 3,580 8,667

FY10 15,882 3,711 (3,870) (900) 14,823 (2,592) (76) (2,668) 12,155 3 (5,371) (724) 1 (6,091) 6,064

FY11P 19,117 33,509 3,658 1,988 58,273 (12,254) (45) (46,624) (58,924) (651) 1,495 (27) (871) 25,428 26,025 25,374

FY12E 27,680 9,170 (8,104) 468 29,215 (18,089) (18,089) 11,126 (10,378) (1,924) (12,302) (1,176)

FY13E 37,001 9,726 (10,900) 843 36,670 (17,550) (17,550) 19,120 (731) (2,244) (2,975) 16,145

Balance Sheet Equity capital Reserves & surplus Shareholders' funds Minorities interests Total Debt Capital Employed Net fix ed assets Cash & Cash Eq. Net other Current Assets Inv estments Net Deferred Tax Assets Total assets

FY09 1,245 34,776 36,021 21,416 57,437 53,130 10,940 144 453 (7,229) 57,437

FY10 1,245 44,842 46,087 16,045 62,132 52,011 17,004 896 529 (8,307) 62,132

FY11P 2,740 104,636 107,376 41,446 148,822 125,056 42,378 (1,885) 574 (17,301) 148,822

FY12E 2,740 121,768 124,508 31,068 155,576 133,974 41,202 (2,674) 574 (17,501) 155,576

FY13E 2,740 145,425 148,165 30,337 178,502 141,798 57,347 (3,517) 574 (17,701) 178,502

Key ratios OPM (%) Net margin (%) Dividend yield (%) Net debt/Equity (x) Net Working Capital (days) Asset turnover (x) ROCE (%) RoE (%) PER (x) Price/Book (x) EV/EBITDA (x) EV/MT (USD)

FY09 27.4 14.9 0.5 0.3 (7) 0.9 25.4 30.1 13.9 3.7 17.1 146

FY10 28.6 15.5 0.6 (0.0) 5 0.9 25.2 26.6 12.1 2.9 14.2 128

FY11P 20.1 9.7 0.7 (0.0) (11) 0.9 17.3 16.7 19.6 2.3 10.8 134

FY12E 22.4 11.4 0.7 (0.1) (13) 0.8 18.2 16.7 15.0 2.3 7.3 125

FY13E 24.7 13.5 0.7 (0.2) (15) 0.9 21.4 19.0 11.2 2.0 5.5 118

P/E Band

EV/EBITDA Band

1,600 1,200
15x

400,000 300,000
12x 9x

10x 8x 6x

800 400 0 Apr-06

200,000
4x

6x 3x

100,000 0 Apr-06

2x

Jul-07

Oct-08

Jan-10

Apr-11

Jul-07

Oct-08

Jan-10

Apr-11

vineet.hetamasaria@pinc.co.in

nikhil.deshpande@pinc.co.in

RESEARCH

T E A M
EQUITY DESK
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RESEARCH
Vineet Hetamasaria, CFA Nikhil Deshpande Tasmai Merchant Vinod Nair Ankit Babel Hitul Gutka Subramaniam Yadav Madhura Joshi Satish Mishra Urvashi Biyani Naveen Trivedi Rohit Kumar Anand Ronak Bakshi Namrata Sharma Sakshee Chhabra Bikash Bhalotia Harleen Babber Dipti Vijaywargi Sushant Dalmia, CFA Suman Memani Abhishek Kumar C Krishnamurthy
Head of Research, Auto, Cement Auto, Auto Ancillary, Cement Auto, Auto Ancillary, Cement Construction, Power, Capital Goods Capital Goods Power Construction Power Fertiliser, Natural Gas, Engineering Fertiliser, Natural Gas, Engineering FMCG IT Services IT Services Media Media Metals, Mining Metals, Mining Metals, Mining Pharma Real Estate, Mid caps Real Estate, Mid caps Technical Analyst

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