Date: February 18, 2019 - HDFC securities PCG - Pick-of-the -We… · Today, Ultratech cement a...

Date: February 18, 2019

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Equity Research

Pick of the Week – PCG Research

Strong Brand Equity amongst the Cement Industry

Market Leader with ~23% market share in Cement Sector

Recent Acquisitions would drive growth momentum

UltraTech Cement

INDUSTRY

CMP

RECOMMEND ed

ADD ON DIPS TO

SEQUENTIAL TARGETS

TIME HORIZON ed

Cement

Rs 3439.5

Buy at CMP and add on declines

Rs 3150 - 3439

Rs 3880-4190 Rs 2885

4-6 quarters

Key Highlights

Govt.’s Infra push to drive demand growth

Estimate 16% revenue and 18% EPS CAGR over FY18-21E

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HDFC Scrip Code ULTCEMEQNR

BSE Code 532538

NSE Code ULTRACEMCO

Bloomberg UTCEM

CMP Feb 16, 2019 3439.5

Equity Capital (cr) 274.64

Face Value (Rs) 10

Eq- Share O/S (cr) 27.46

Market Cap (Rs cr) 94520

Book Value (Rs) 961

Avg.52 Wk Volume 512651

52 Week High 4490

52 Week Low 3264

Red flag Price Level 2885

PCG Risk Rating * Yellow

Shareholding Pattern % (Dec 31, 2018)

Promoters 61.7

Institutions 28.0

Non Institutions 10.3

Total 100

FUNDAMENTAL ANALYST Kushal Rughani [email protected]

Company Profile: UltraTech Cement, India’s largest cement company, is set to emerge prime beneficiary of the rising trend in industry clinker utilisations. UltraTech Cement is the largest manufacturer of grey cement, Ready Mix Concrete (RMC) and white cement in India. It is also one of the leading cement producers globally. The company has consolidated capacity of 96.5 MTPA of grey cement. Post the recent acquisitions, the total capacity will get increased to ~113 MTPA. UltraTech Cement has 19 integrated plants, one clinkerisation plant, 25 grinding units and 7 bulk terminals. The company’s operations span across India, UAE, Bahrain, Bangladesh and Sri Lanka. UltraTech Cement is also India's largest exporter of cement, meeting the demands in countries around the Indian Ocean and the Middle East. With 100+ Ready Mix Concrete (RMC) plants in 35 cities, UltraTech is the largest manufacturer of concrete in India. As the utilisation levels rise for the company, and the costs stabilise, the pricing power will come leading to an upcycle. Grasim, the flagship company of the AV Birla Group, is a majority shareholder in ULTRATECH with 60.2% ownership. With a significant presence in the Grey &

White cement, Concrete & Building products segment as well as providing 360 degree Building Solutions,

UltraTech is one-stop shop for every primary construction need.

Investment Rationale: Ultratech Cement – the largest cement player in the country with ~23% market share

Recent Acquisitions would propel growth momentum further

Govt.’s Infra push to drive demand growth

Strong demand outlook coupled with pricing power would be key drivers

Estimate 16% revenue and 18% EPS CAGR over FY18-21E

View and Valuation: In our view: A. The central and eastern regions are best placed to take advantage of upcoming demand from PMAY B. The northern region is well placed to capture demand from roads C. Lastly, the south and western players are likely to be the key beneficiaries of the government’s focus on irrigation projects. While the demand growth outlook for the central and eastern regions remain strong, high level of capacity addition is likely to keep utilisation under check. However, north is likely to witness minimum capacity addition, and thus, utilisation improvement is expected to be highest in this region. We believe the recent correction in crude prices should result in lower cost curve for the company from 4QFY19. Moreover, recent acquisitions would result into better growth visibility from FY20 onwards. We expect 16% revenue, ~15% EBITDA and 18% EPS CAGR over FY18-21E. Strong revenues and margin expansion from FY20 onward would drive robust growth in profitability. The Stock trades at 12.5x FY21E EV/EBITDA. Given the fact that Ultratech is one of the largest cement player with pan India presence and strong sustainable financials, we believe the company would continue to trade at premium over mid-sized cement companies. We recommend Buy on Ultratech Cement at cmp of Rs 3439 and add on dips to Rs 3150 for TP of Rs 3880 and Rs 4190 (based upon 15.5x FY21E EV/EBITDA) over the next 12 months.

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Key Highlights

UltraTech Cement, India’s largest cement

company, is set to emerge prime beneficiary of the rising trend in industry clinker utilisations. UltraTech Cement is the largest manufacturer of Grey cement, Ready Mix Concrete (RMC) and White cement in India.

Post the recent acquisitions the total capacity will get increased to ~113 MTPA. UltraTech Cement is also India's largest exporter of cement, meeting the demands demand in countries around the Indian Ocean and the Middle East.

The acquisition is expected to be completed in Q4

FY19, will be in the form of the issuance of 1 share

of ULTRATECH for every 8 shares held in Century

Textiles. This will result in 5.1% increase in

ULTRATECH’s share capital. ULTRATECH will also

assume responsibility for Rs 30bn of debt relating

to Century’s cement business.

We expect 16% revenue, ~15% EBITDA and 18% EPS

cagr over FY18-21E. Strong revenues and margin expansion from FY20 onward would drive robust growth in profitability. Recent acquisitions would result into better growth visibility from FY20 onward. As utilisation levels rise for the company, and the costs stabilise, the pricing power will come leading to an upcycle.

The Stock trades at 12.5x FY21E EV/EBITDA. Given the fact that Ultratech is one of the largest cement player with pan India presence and strong sustainable financials, we believe company would continue to trade at premium over mid-sized cement companies.

Company Background:

Ultratech Cement was incorporated in 2000, as Larsen & Toubro (L&T). Later, it was demerged and acquired by Grasim

and was renamed as Ultra Tech Cement in 2004. Today, Ultratech cement a part of Aditya Birla group, is the country’s

largest manufacturer of grey cement, Ready Mix Concrete (RMC) and white cement in India. It is also one of the leading

cement producers globally.

The company has a consolidated capacity of 113 Million Tonnes Per Annum (MTPA) post the acquisitions. UltraTech

Cement has 20 integrated plants, 1 clinkerisation plant, 26 grinding units and 7 bulk terminals. Its operations span

across India, UAE, Bahrain, Bangladesh and Sri Lanka. UltraTech Cement is also India's largest exporter of cement,

meeting the demands in countries around the Indian Ocean and the Middle East.

In the white cement segment, UltraTech goes to market under the brand name of Birla White. It has a white cement

plant with a capacity of 0.56 MTPA and 2 WallCare putty plants with a combined capacity of 0.8 MTPA.

With 100+ Ready Mix Concrete (RMC) plants in 35 cities, UltraTech is the largest manufacturer of concrete in India. It

also has a slew of speciality concretes that meet specific needs of discerning customers.

Building Products business is an innovation hub that offers an array of scientifically engineered products to cater to

new-age constructions. Aerated Autoclaved Concrete (AAC) blocks are economical, light-weight blocks ideal for high-

rise buildings, while Dry Mix Products include waterproofing, grouting and plastering solutions designed for faster

completion of projects. The retail format of UltraTech Building Solutions offers a wide range of construction products

to the end customers under one roof.

With a significant presence in the Grey & White cement, Concrete & Building products segment as well as providing 360 degree Building Solutions, UltraTech is one-stop shop for every primary construction need.

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Largest pan-India Cement player with diversified products portfolio

UltraTech is country’s largest pan India cement player with consolidated capacity of 113 MTPA of grey cement. It has 20 integrated plants, 1 clinkerisation plant, 26

grinding units and 7 bulk terminals. Globally, it is also the third-largest player (excluding China) post the recent acquisitions. Its operations span across India, UAE,

Bahrain, Bangladesh and Sri Lanka. UltraTech Cement is also India's largest exporter of cement, meeting the demands in countries around the Indian Ocean and the

Middle East. UltraTech has acquired cement capacities of Jaiprakash Associates in June 2017. This has provided additional diversification with increased presence in

central India, coastal Andhra Pradesh, Uttarakhand and Himachal Pradesh. On 19 November, 2018, the company acquired Binani Cements with 6.25 MTPA in India

(Rajasthan), and has presence in China and Dubai through its subsidiaries. Company has also announced acquisition of 14.6 MTPA capacity from Century Textiles and

Industries. The Century acquisition would lead to issuance of ~1.4cr equity shares, resulting into increase of equity capital from Rs 274.6cr to Rs 288.6cr. The acquired

capacities are spread across the country, resulting in lower lead distance and enabling the company to cater to key micro markets in northern, western and eastern

India.

UltraTech Cement provides a range of products that cater to the various aspects of construction, from foundation to finish. These include the following:

Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement under grey cement

White cement, WallCare putty and white cement based products under Birla White

Ready Mix Concrete and a range of specialty concretes with specific functional properties under UltraTech Concrete

AAC blocks, waterproofing solutions, grouting solutions and plastering solutions under UltraTech Building Products

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India Cement Industry Demand Supply Trend

Source: Company, HDFC sec Research

83

82

74

6970

67

6664 65 64

6469

7175

50

55

60

65

70

75

80

85

0

100

200

300

400

500

600

FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19E FY 20E FY 21E

%

MT

PA

Capacity Demand Capacity Utilization (%)

Improvement in Utilisation rate will bring Pricing power for Industry Players

After seeing a continuous decline in the capacity utilisation, last 2 years have shown significant improvement. Average capacity utilisation in the country is hovering

around 70% from the bottom of about 65%.

Talking about new capacity additions, as it stands today is 17.3 MTPA of capacity which would get added in this financial year, taking the industry total to about 478

MTPA. Demand has been growing at much more than this new capacity, which will thus reduce the surplus capacity as compared to the previous year. Similarly, we

expect another 18 MTPA to be added in FY20 and perhaps 16 MTPA in FY21.

Cement consumption is expected to increase by over 25mt annually which would lead to improvement in utilisation rate for the industry. According to our

calculations this level is expected to reach around 75%.

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Consolidation in the sector The top 5-6 players in the cement industry control 80-85% of the liquidity in the sector but only account for 57% of the total debt as per a CRISIL Report. This means, the bigger players, have more scope of expansion. As of 9M FY19, Ultratech is working at ~72% utilisation levels. Clinker utilisation levels are expected to touch 90% in the northern and central regions this year. The demand growth for North India market is 7-8% but capacity additions are only at ~3%. Also the cement prices in the central region are up ~7-8%. All the factors will lead to even higher utilisation levels for Ultratech which will benefit the most due to its Pan India presence. The bigger players are acquiring assets of the smaller players to increase their production and to cater to more markets. Some recent acquisitions include Ultratech acquiring assets of JP Associates, acquisition of Century Textiles’ cement business, and the acquisition of Binani Cement. Fewer players would eventually mean more pricing power as the utilisation levels rise for the industry.

Recent Acquisitions Update Following the acquisitions of UltraTech Nathdwara Cement Limited (UNCL), formerly known as Binani Cement, and the cement business of Century Textiles, UltraTech Cement’s capacity in India will reach ~113mt, or 23% of the installed capacity in India. UNCL, a 100% subsidiary of UltraTech (ULTRATECH), has a grinding capacity of 6.25mt and a clinker capacity of 4.59mt in North India. Post the acquisition; ULTRATECH’s capacity in North India has increased to 23.8 mt, capacity share of ~22% (FY18: ~16%) in the region. The acquisition of Century Textiles’ 14.6mt cement capacity (including 1.2mt under construction) is expected to get completed in Q4FY19. The business has footprint in the East, Central and West regions. After this transaction, ULTRATECH’s capacity share in the West/Central regions will be at 44%/40%. ULTRATECH has acquired UltraTech Nathdwara Cement Limited (UNCL), previously known as Binani Cement, and made it a wholly-owned subsidiary. The assets, acquired for total consideration of Rs 80.3bn, include 4.85mt integrated unit, 1.4mt split grinding unit in Rajasthan, and 70MW thermal power plant. International assets include 2mt clinker and 0.3mt cement capacity in China and 2mt grinding capacity in Dubai. This acquisition will increase company’s regional capacity to 23.8mt from 17.5mt, enhancing its market share in North India (~22% market share). We believe that this acquisition will be earnings-dilutive in the near term, and ULTRATECH may look to expand the plant’s capacity going forward. Century Textiles’ cement business includes grinding capacity of 4.8 mt in Maharashtra, 4.2 mt in Madhya Pradesh, 2.4 mt in Chhattisgarh, 2 mt grinding unit in West Bengal and 1.2mt grinding unit in the West region for which statutory clearance has been received. The acquisition, expected to be completed in Q4FY19, will be in the form of the issuance of 1 share of ULTRATECH for every 8 shares held in Century Textiles, which will result in 5.1% increase in share capital. ULTRATECH will also assume responsibility for Rs 30bn of debt relating to Century’s cement business. As a result, ULTRATECH will issue an additional 139.6mn equity shares, leading to a 5.1% increase in its share capital. In our view, this should help improve the profitability of the existing assets as they would benefit from ULTRATECH’s procurement synergies and brand equity, i.e., better prices. We expect the acquisition of Century Textiles’ cement assets to be completed in Q4FY19 and factor it in our estimates from FY20E. Century Textiles’ cement assets include three integrated units – 4.8 mt in Maharashtra, 4.2 mt in Madhya Pradesh, 2.4 mt in Chhattisgarh and a 2 mt grinding unit in West Bengal. A 1.2 mt grinding unit in the western region is under construction, for which statutory clearance has been received. These assets have 117 MW of thermal power plants and limestone reserves with more than thirty five years of reserve life.

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UltraTech’s capacity concentration to increase in North and East India After the completion of the two acquisitions - UNCL and Century Textiles’ cement business - ULTRATECH’s capacity concentration will improve in North (21% of installed capacities of ULTRATECH vs. 18.9%) and East India (14.2% of installed capacities of ULTRATECH vs. 12.6%). It will become the largest player, in terms of installed capacities, in all markets, except the North, where Shree Cement is the largest player.

Industry Overview The cement industry occupies an important place in the Indian economy because of its strong linkages with other sectors such as construction, transportation, coal and power. The sector notably plays a critical role in the economic growth of the country, in its journey towards an inclusive and decidedly conclusive growth. The construction sector alone constitutes about 7 percent of the country’s gross domestic product (GDP). India is the second largest producer of cement in the world after China, with an installed capacity of 472 MTPA. Presently, the Indian cement industry has 225 plants, owned by 65 players. Although India is among the leading producers of cement in the world, its per capita cement consumption is at 210 kg, which is lowest among the developing countries, it is said. The world average is 580 kg, while countries such as China has a per capita cement consumption of 1,780 kg, followed by Turkey (830 kg) and Vietnam (660 kg). The factors that could trigger cement sales are infrastructural demand especially for Government projects, as well as higher housing demand in rural and semi-urban areas. Higher realisation and rising dispatches are considered to be conducive for higher profits for the cement industry. All efforts are targeted to increase sales and reach the premium segment in prices. Cement, being a bulk commodity, is a freight intensive industry and long distance transportation can prove to be uneconomical. This has resulted in cement being largely a regional player with the industry divided into five main regions viz. north, south, west, east and the central region. Cement is relatively a highly concentrated industry in India: i) the top 10 companies constitute > 60% of the market; ii) the top 5 companies enjoy market share of around > 48%; and iii) the top 2 cement groups (Lafarge Holcim and Aditya Birla Group) enjoy market share of around 35%. Cyclicity of the Industry

Fixed costs in the cement industry are particularly high and significant relative to variable costs. Fixed costs generally account for more than 50% of the overall

production costs. The fixed costs are usually sunk costs. Once built, a cement plant can serve no other purpose. As fixed costs are high with respect to the variable

costs, the break-even point is high. With automation, labour costs have decreased, but energy consumption is a more significant variable cost. Thus, profits in the

industry are sensitive to the level of utilisation of the production capacity. Significant cash flows are generated only when product increases beyond the break-even

point, which depends on the efficiency of the plant.

As utilisations improve to above 80% levels, their profitability improves substantially given the fact that around ~50% cost remains fixed in nature. We expect the same to happen in the next two quarters which would drive the performance. Better return profiles of the existing players led to a spurt in capacity additions. Due to the subsequent drop in demand growth and as the capacities came online, the industry’s utilisation levels gradually declined, leading to lower profitability and hence a decline in return profiles.

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Transportation Costs

Availability and proximity of Raw Materials and other input materials (Limestone, Gypsum, Coal, Petcoke, Chalk, Clay, Etc.). Because cement is bulky, it is very

expensive to transport the end product. The closer the factories are located to the end market, the lesser are the freight and transportation costs, which in turn

means higher margins for the company. This can be used to their advantage in giving discounts to dealers, and push their products more. Transportation is a major

cost element for cement companies (around 20-25% of sales), often a bigger line item than net profits for many companies.

Rail is the ideal mode of transportation for cement industry. However, it has always been plagued by the short supply of wagons, particularly during the peak

period. In addition to this, infrastructure constraints along with discounting the views of the cement industry (which is one of its largest consumers) in the policies

of the railways has hampered the planned movement of cement to the consumption centres, thus adversely impacting the production schedule and also increasing

the overall transportation cost of cement.

Cement Making Process (Raw materials and Costs structure)

Cement is made by heating limestone with small quantities of other materials to 1450 degree C in a kiln. The resulting hard material recovered after is called

‘Clinker’ (looks like small lumps). This clinker is then crushed with a small amount of gypsum to get a powdery form, which is OPC Cement.

Basically main requirements can be summarised as: Limestone, Energy (Coal or substitutes like Petcoke, Flyash, Slag), Gypsum.

A unit which does both grinding and clinker manufacturing is called an Integrated Unit. A unit that does only grinding work is called Grinding Unit.

Mines are normally allotted through Government auction and are leased to a company for time periods extending up to 99 years. After expiry of the lease term,

the mines are again re-auctioned. Some companies like ACC have old legacy mines, allotted in 1960s with lease period of 99 years.

If the quality of limestone procured from mines is not of correct quality, then a company has to add chemicals (Correctives) to make Clinker of desired quality.

Since mines are allotted by Government, they typically give a right of mining (by charging a hefty sum). Companies capitalise this amount as an Intangible Asset.

Hence, one can quickly check the Intangible Assets Section in Balance Sheet to know if a company has a limestone mine. This Intangible asset is depreciated on the

basis of Quantity of Limestone extracted as a proportion of Actual Quantity of Reserves existing. So, we can actually do a reverse calculation to judge the life and

quantity of reserves a company has in their mines.

Reduction in power costs Power cost is an important factor for the sector. Ultratech cement is consistently adding to its Waste Heat Recovery Systems (WHRS) in order to bring down its power costs. WHRS can lead to Rs 3-4 Cr/MW savings annually for the company which translates to ~Rs 800 Cr in cost savings. Currently, company has 59 MW of WHRS installed at its various facilities with plans to add another 13 MW plant. Petcoke is another option for power generation and a good alternative to the traditional coal. While there was a Supreme Court ban on the import of petcoke, the cement industry is exempt from it. Petcoke prices have gone down around 20-25% in the last few months. Also due to the ban by International Maritime board on the usage of high Sulphur content to crude from 19-20 and China’s ban on petcoke, the global petcoke prices are expected to drop even further. Apart from these factors, the Government’s announcement of increasing the axle load specifications of trucks, the freight costs are also expected to go down for Ultratech.

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Pick of the Week – PCG Research Expect strong growth in infrastructure-led cement demand Road projects are facing challenges in the form of acquisition of land, shifting of utilities (like electrical lines, water supply lines, etc.), statutory clearances (such as forest, tree-felling, wildlife clearances etc.), and availability of soil/aggregate, among others. Most of these challenges relate to the states, which are resolved through regular monitoring and reviews with the state authorities. We expect most of the issues relating to land acquisition to get resolved by March 2019. The Ministry of Road Transport and Highways has set target to construct 10,000km of National Highways (NHs) in the country in FY18-19, of which 5,759km (i.e. 57.59%) was already completed as of November 30,18. History suggests strong uptick in demand during election years Historical data over the past several years says a sharp uptick is expected in cement demand during election years. With the general elections scheduled in May 2019 and other state elections like Maharashtra and Andhra Pradesh lined up post that, we expect the Governments to push various infrastructure and construction projects, leading to acceleration in demand growth. View & Valuations In our view, (a) the central and eastern regions are best placed to take advantage of upcoming demand from PMAY, (b) the northern region is well placed to capture demand from roads and (c) south and western players are likely to be the key beneficiaries of the Government’s focus on irrigation projects. While the demand growth outlook for the central and eastern regions remain strong, high level of capacity addition is likely to keep utilisation under check. However, north is likely to witness minimum capacity addition, and thus, utilisation improvement is expected to be highest in this region. We believe the recent correction in crude prices should result in lower cost curve for the company from 4QFY19. Moreover, recent acquisitions would result into better growth visibility from FY20 onwards. We expect 16% revenue, ~15% EBITDA and 18% EPS CAGR over FY18-21E. Strong revenues and margin expansion from FY20 onward would drive robust growth in profitability. The Stock trades at 12.5x FY21E EV/EBITDA. Given the fact that Ultratech is one of the largest cement player with pan India presence and strong sustainable financials, we believe company would continue to trade at premium over mid-sized cement companies. We recommend Buy on Ultratech Cement at cmp of Rs 3439 and add on dips to Rs 3150 for TP of Rs 3880 and Rs 4190 (based upon 15.5x FY21E EV/EBITDA) over the next 12 months.

Key Risks:

Availability and proximity of Raw Materials and other input materials (Limestone, Gypsum, Coal, Petcoke, Chalk, Clay, Etc.) High Transportation Costs High Energy Costs: Coal is one of the major raw materials needed by the industry both in the manufacturing of cement and also for generating power Demand-Supply mismatches due to delay in ordering and slow of implementation in projects High Taxes: The levies and taxes on cement in India are far higher compared to those in the countries of Asia-Pacific region or even compared to the

developing economies like Pakistan and Sri Lanka.

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Realisations per ton Trend


0

5

10

15

20

25

4500

4600

4700

4800

4900

5000

5100

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Rs/Ton EBITDA Margin

Volume Trend


-5

0

5

10

15

20

25

30

35

40

5

10

15

20

25

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

mn Ton Growth (%)

Realization per ton over FY10 - 9M FY19


3535 3704

4340

4850 48014993 4847 4789 4895 4947

0

1000

2000

3000

4000

5000

6000

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 9MFY19

EBITDA per ton Trend


1078978 949 909

1183

1028

801

922 928818 777

0

200

400

600

800

1000

1200

1400

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

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Q2FY19

Q3FY19

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Balance Sheet

(Rs Cr) FY17 FY18 FY19E FY20E FY21E

SOURCE OF FUNDS

Share Capital 274.5 274.6 274.6 288.6 288.6

Reserves 24117 26107 27821 33074 37118

Shareholders' Funds 24392 26381 28096 33363 37407

Minority Interest 10 16 16 16 16

Long term debt 6371 15863 18560 19859 18867

Short Term Debt 1079 2763 3261 3098 2881

Long Term Provisions & Others 1371 1455 1660 1788 1949

Deferred Tax Liabilities (Net) 2782 3183 3183 3183 3183

Total Source of Funds 33222 46479 51601 58132 61127

APPLICATION OF FUNDS

Net Block 24819.1 38680 41107.3 46828 46110.1

Goodwill 1085.1 1036 3030.0 3030 3030.0

Intangibles 920.9 1510 1510.3 1510 1510.3

Non-current Investment 1279.5 1498 1643.6 1768 2177.1

Long Term Loans & Advances 672.7 2916 3061.3 3123 3185.0

Total Non Current Assets 28777 45640 50352 56259 57006.4

Inventories 2400.6 3268 3370.5 4025 4486.3

Trade Receivables 1757.1 2228 2690.5 3184 3643.4

Cash & Equivalents 2248.8 219 827.1 1089 2393.3

Other Current Assets 5883.9 4675 3989.5 3851 4196.9

Total Current Assets 11630 9131 10786.5 12768 16371.0

Trade Payables 1848.6 2504 3094 3847 4387.2

Other Current Liab & Provisions 5336.4 5788 6466.3 7048 7885.2

Total Current Liabilities 7185.0 8292 9560 10895 12272.5

Net Current Assets 4445 839 1248 1873 4121

Total Application of Funds 33222 46479 51601 58132 61127 Source: Company, HDFC sec Research

Income Statement


Net Revenue 25375 31411 35972 43860 49622

Growth (%) 0.9 23.8 14.5 21.9 13.1

Operating Expenses 20163 25266 29647 35824 40281

EBITDA 5212 6145 6324 8036 9341

Growth (%) 6 18 3 27 16

EBITDA Margin (%) 20.5 19.6 17.6 18.3 18.8

Depreciation 1348 1848 2173 2379 2728

EBIT 3864 4297 4151 5656 6613

Other Income 648 584 438 523 665

Interest 640 1233 1548 1852 1688

PBT 3872 3303 3041 4328 5589

Tax 1159 1077 967 1350 1721

Minority Int/Income from Associate 9 4 -44 -12 -19

RPAT 2715 2225 2030 2966 3849

Growth (%) 9 -18 -9 46 30

EPS 98.9 81.0 73.9 102.8 133.3 Source: Company, HDFC sec Research

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Cash Flow Statement


Reported PBT 3872 3303 3041 4328 5589

Non-operating & EO items -648 -584 -438 -523 -665

Interest Expenses 640 1233 1548 1852 1688

Depreciation 1348 1847.9 2173 2379.2 2728

Working Capital Change -6100 2837.5 1545 36.0 -339

Tax Paid -1159 -1077.0 -967 -1350.4 -1721

OPERATING CASH FLOW ( a ) -2046 7,561 6902 6,721 7280

Capex -1360 -16222 -4350 -7150 -2752

Free Cash Flow -3406 -8662 2552 -429 4528

Investments 1844 -2346 -2361 -168 -463

Non-operating income 648 583.6 438 523.4 665

INVESTING CASH FLOW ( b ) 1132 -17985 -6273 -6794 -2551

Debt Issuance / (Repaid) 1865 9932.9 2762 1342.2 -942

Interest Expenses -640 -1232.8 -1548 -1851.5 -1688

FCFE -2182 39 3766 -938 1897

Share Capital Issuance -6 6 0 14 0

Dividend -330 -348 -359 -475 -574

FINANCING CASH FLOW ( c ) 889 8359 855 -970 -3204

NET CASH FLOW (a+b+c) -25 -2065 1484 -1044 1525 Source: Company, HDFC sec Research

Key Ratios

Key Ratios (%) FY17 FY18 FY19E FY20E FY21E

EBITDA Margin 20.5 19.6 17.6 18.3 18.8

EBIT Margin 14.8 13.4 11.4 12.7 13.1

APAT Margin 10.4 7.0 5.7 6.7 7.7

RoE 11.7 8.8 7.5 9.7 10.9

RoIC 10.6 8.5 6.4 7.8 8.5

RoCE 8.5 7.3 5.9 7.3 7.8

Solvency Ratio

Net Debt/EBITDA (x) 0.0 2.4 2.8 2.4 1.8

Net D/E 0.0 0.5 0.6 0.6 0.4

Interest Coverage 6.0 3.5 2.7 3.1 3.9

PER SHARE DATA

EPS 98.9 81.0 73.9 102.8 133.3

CEPS 148.0 148.3 153.0 185.2 227.9

BV 888.6 960.7 1023.1 1156.0 1296.1

Dividend 10.0 10.5 11.0 14.0 17.0

VALUATION

P/E 34.8 42.5 46.6 33.5 25.8

P/BV 3.9 4 3.4 3 2.7

EV/EBITDA 22.8 19.3 18.8 14.8 12.7

EV / Revenues 4.7 3.8 3.3 2.7 2.4 Source: Company, HDFC sec Research

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Ratings Chart

R E T U R N

HIGH

MEDIUM

LOW

LOW MEDIUM HIGH

RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

BLUE LOW RISK - LOW RETURN STOCKS

IF RISKS MANIFEST PRICE CAN FALL 20%

OR MORE

IF RISKS MANIFEST PRICE CAN FALL 15% &

IF INVESTMENT RATIONALE FRUCTFIES PRICE CAN RISE BY 15%

IF INVESTMENT RATIONALE FRUCTFIES

PRICE CAN RISE BY 20% OR MORE

YELLOW MEDIUM RISK - HIGH RETURN STOCKS


OR MORE





RED HIGH RISK - HIGH RETURN STOCKS


OR MORE





# Explanation of Red-flag Price level: If stock prices starts sustaining below red-flag level, the premise of the investment needs to be reviewed. Risk averse

investors should exit the stock and preserve capital. The downside of following red-flag level is that if the price decline turns out to be temporary and if

it recovers, subsequently you won’t be able to participate in the gains.

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Equity Research


Price Chart

500

1000

1500

2000

2500

3000

3500

4000

4500

Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year Sell: Stock is expected to decline by 10% or more in the next 1 Year

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Equity Research


Research Analyst: Kushal Rughani ([email protected])

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 3075 3450 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 SEBI Registration No.: INZ000186937 (NSE, BSE, MSEI, MCX) |NSE Trading Member Code: 11094 | BSE Clearing Number: 393 | MSEI Trading Member Code: 30000 | MCX Member Code: 56015 | AMFI Reg No. ARN -13549, PFRDA Reg. No - POP 04102015, IRDA Corporate Agent Licence No.-HDF2806925/HDF C000222657, Research Analyst Reg. No. INH000002475, CIN-U67120MH2000PLC152193. Disclosure: I, (Kushal Rughani, MBA), 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. HSL has no material adverse disciplinary history as on the date of publication of this report. 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Date: February 18, 2019 - HDFC securities PCG - Pick-of-the -We… · Today, Ultratech cement a...

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