Cement. October 21, 2013. UltraTech Cement. Bloomberg: UTCEM IN. Reuters:
... Demand & price uptick expected in 2HFY14E: While UltraTech's 2QFY14 &.
Cement
October 21, 2013
UltraTech Cement
Institutional Equities India Research
Bloomberg: UTCEM IN Reuters: UTCEM.BO
RESULT REVIEW
BUY
In‐line realization; higher fixed cost hurt profitability
Recommendation CMP: UltraTechʹs standalone Sales/ EBITDA/ PAT during 2QFY14 declined 4% Target Price: /34%/52% YoY to Rs45.2bn, Rs6.8bn & Rs2.64bn respectively. Upside (%)
Demand & price uptick expected in 2HFY14E: While UltraTechʹs 2QFY14 & 1HFY14 profitability has been weak (along with that of the industry), we expect cement demand to pick up from 2HFY14 onwards driven by the Governmentʹs pre‐election spending and rural demand pick up (post the good monsoon witnessed this year). These should help cement prices to stabilise upwards and even manufacturers have started implementing price discipline to pass on the rising cost pressure. Hence, we expect UltraTech to deliver EBITDA & PAT CAGR of ~15% during FY13‐15E period. We expect stable cement prices and favourable profit base effect during 2HFY14E to act as positive triggers for the stock. Hence, we maintain our positive stance on the stock and recommend “BUY” the stock on near term stock price declines.
Rs1,963 Rs2,086 6%
Stock Information Market Cap. (Rs bn / US$ mn) 52‐week High/Low (Rs)
539/8,783 2,154/1,402
3m ADV (Rs mn/US$mn)
432/5.7
Beta
0.8
Sensex/ Nifty
20,883/6,189
Share outstanding (mn)
274
Stock Performance (%) Absolute Rel. to Sensex
1M 14.4
3M 2.1
9.4
(1.6)
2QFY14E: In‐line realization & volumes: Its blended net sales realization Performance (NSR) declined 0.4% QoQ & 3.6% YoY in‐line with our estimates. While the 21,500 cement prices had weakened during the early part of the Sep‐qtr, the same 19,500 recovered sharply thereafter leading to stable QoQ NSR. However, on YoY 17,500 basis, NSR remained low thereby leading to lower sales & profit as sales 15,500 volume remained almost flat YoY (down 9% QoQ and 1% YoY).
12M YTD 45.0 (1.1) (13.3)
(8)
Oct‐12 Nov‐12 Jan‐13 Feb‐13 Mar‐13 May‐13 Jun‐13 Jul‐13 Sep‐13 Oct‐13
2,150 2,050 1,950 1,850 1,750 1,650 1,550
Operating cost pressure on rise in fixed costs and lower utilization QoQ: While sales volume declined 9% QoQ, fixed costs rose 9% QoQ (impact of Sensex (LHS) Ultartech Cement (RHS) recent capacity additions and higher maintenance expense incurred during this qtr) thereby driving higher operating costs. While power costs were Source: Bloomberg, Karvy Institutional Research impacted on account of the INR depreciation impact on imported coal & pet coke, the companyʹs logistics efficiency resulted in 1% lower freight costs per MT despite rising diesel prices. Weak NSR amid higher costs resulted in Earnings Revision (%) FY14E FY15E EBITDA declining 34% YoY (our est 23% decline) to Rs6.8bn. Subsequently, Sales ‐ 0.3% its PAT declined 52% YoY (our est 36% decline) to Rs2.64bn. Exhibit 1: Financial Summary (Standalone) Y/E Mar (Rs mn)
EBITDA
3.6%
‐
PAT
3.8%
‐
FY11
FY12
FY13
FY14E
FY15E
Net Sales
133,228
183,098
201,749
219,373
264,713
EBITDA
26,764
41,474
46,755
49,031
62,682
20.1
22.7
23.2
22.4
23.7
PAT (Rs)
14,096
24,601
26,554
26,871
33,832
EPS (Rs)
51.4
89.8
96.8
98.0
123.4
RoE (%)
18.5
20.9
18.9
21.6
17.7
RoCE (%)
13.7
14.7
13.5
12.4
14.1
P/E (x)
38.2
21.9
20.3
20.0
15.9
EV/EBITDA (x)
30.8
26.3
20.0
12.6
10.9
EV/mt (US$)
178
175
162
138
135
EBITDA margin (%)
Source: Company, Karvy Institutional Research
Source: Karvy Institutional Research
Analysts Contact Rajesh Kumar Ravi 022 6184 4313
[email protected]
October 21, 2013
Ultratech
Quarterly Performance Trend Exhibit 2: Key standalone financials for the quarter and half year Quarterly
Half Year
Sep‐12
Jun‐13
Sep‐13
YoY (%)
QoQ (%)
Sep‐12
Sep‐13
YoY (%)
Net Sales
47,274
49,802
45,219
(4.3)
(9.2)
98,183
95,021
(3.2)
Total Expenditure
(Rs mn)
36,922
39,084
38,424
4.1
(1.7)
74,752
77,508
3.7
Raw Materials
6,518
7,803
7,568
16.1
(3.0)
13,962
15,370
10.1
Power and Fuel
10,741
9,896
9,566
(10.9)
(3.3)
21,603
19,462
(9.9)
Employee
2,395
2,507
2,844
18.8
13.5
4,631
5,352
15.6
Transport
9,292
11,018
9,942
7.0
(9.8)
19,656
20,961
6.6
7,975
7,860
8,504
6.6
8.2
14,901
16,364
9.8
10,352
10,718
6,795
(34.4)
(36.6)
23,431
17,512
(25.3)
Others EBITDA EBITDA margins (%)
21.9
21.5
15.0
(687)
(649)
23.9
18.4
(543)
Other Income
406
1,656
376
(7.4)
(77.3)
1,094
2,032
85.7
Depreciation
2,325
2,521
2,573
10.7
2.1
4,606
5,093
10.6
EBIT
8,434
9,852
4,598
(45.5)
(53.3)
19,919
14,451
(27.5)
EBIT margins (%)
17.8
19.8
10.2
(767)
(961)
20.3
15.2
(508)
Interest
600
660
888
47.9
34.4
1,098
1,548
41.0
Taxes
2,334
2,466
1,070
(54.2)
(56.6)
5,537
3,536
(36.1)
Adjusted Net Profits
5,500
6,726
2,641
(52.0)
(60.7)
13,284
9,367
(29.5)
PAT margins (%)
11.6
13.5
5.8
(579)
(766)
13.5
9.9
(367)
EPS (Rs)
20.1
24.5
9.6
(52.0)
(60.7)
48.5
34.2
(29.5)
Source: Company, Karvy Institutional Research
Exhibit 3: Key operational analysis for the quarter and half year Quarterly
Half Year
Sep‐12
Jun‐13
Sep‐13
YoY (%)
QoQ (%)
Sep‐12
Sep‐13
YoY (%)
9.5
10.4
9.5
(0.8)
(8.8)
20.1
19.84
(1.1)
4,956
4,798
4,779
(3.6)
(0.4)
4,896
4,789
(2.2)
683
752
800
17.0
6.4
696
775
11.3
981
(9.0)
Total sales volume (mn mt) Trends (Rs/mt) Net sales realization (NSR) Raw material cost Power and fuel cost
1,126
953
1,011
(10.2)
6.0
1,077
Employee cost
251
242
301
19.7
24.5
231
270
16.8
Transport cost
974
1,061
1,051
7.9
(1.0)
980
1,056
7.8
Other expenses
836
757
899
7.5
18.7
743
825
11.0
Operating cost
3,871
3,765
4,061
4.9
7.8
3,728
3,906
4.8
RM and Fuel combined
1,809
1,705
1,811
0.1
6.2
1,773
1,755
(1.0)
Variable cost
2,784
2,766
2,861
2.8
3.4
2,754
2,812
2.1
Fixed costs
1,087
999
1,199
10.3
20.1
974
1,094
EBITDA
1,085
1,032
718
(33.8)
(30.5)
1,168
883
12.4 (24.5)
Source: Company, Karvy Institutional Research
2
October 21, 2013
Ultratech
Key Operating Estimates Exhibit 4: Key operational estimates FY10
FY11
FY12
FY13
FY14E
FY15E
Total Sales Volume (mn mt)
20.2
35.4
41.7
41.7
43.8
49.6
YoY Growth (%)
11.3
4.2
1.9
0.0
5.0
13.4
3,517
3,761
4,395
4,842
5,014
5,335
(0.7)
6.9
16.9
10.2
3.6
6.4
Raw material
508
526
618
698
765
767
YoY Growth (%)
49.9
3.7
17.5
12.9
9.6
0.2
Power and fuel cost
707
882
1,033
1,032
1,031
1,051
(25.6)
24.8
17.1
(0.1)
(0.1)
2.0 1,021
(Per mt) Net sales realization YoY Growth (%)
YoY Growth (%) Freight cost
608
721
800
909
963
YoY Growth (%)
4.4
18.6
11.0
13.6
6.0
6.0
Employee cost
125
188
199
232
262
270
YoY Growth (%)
4.4
50.1
6.2
16.5
12.7
3.0
Other Expenses
563
688
748
848
872
962
YoY Growth (%)
(3.4)
22.2
8.7
13.4
2.8
10.3
Operating Costs
2,511
3,005
3,399
3,720
3,893
4,071
YoY Growth (%) EBITDA
(2.5)
19.7
13.1
9.4
4.7
4.6
1,006
755
995
1,122
1,121
1,263
4.0
(24.9)
31.8
12.7
(0.1)
12.7
YoY Growth (%)
Source: Company, Karvy Institutional Research
Capex on track: The Company commissioned a 25MW TPP in Rajashree Cement in Karnataka during the Sep‐qtr. Thereafter, it commissioned a 1.6 mn MT grinding unit in Orissa towards its Chhattisgarh expansions. The companyʹs Indiaʹs installed capacity will rise to 61 mn MT by end of FY14E.
Outlook and Valuations Demand & price uptick expected in 2HFY14E: While UltraTechʹs 1HFY14 profitability has been weak (along‐with that of the industry), we expect cement demand to pick up from 2HFY14 onwards driven by governmentʹs pre‐election spending as well as on account of rural demand pick post the good monsoon witnessed this year. This should help cement prices to stabilize upwards and even manufacturers have started implementing price discipline to pass on the rising cost pressure. We have trimmed our FY14E EBITDA & PAT estimates by 3.6% and 3.8% respectively to factor in the performance deviation in 2QFY14 vs our estimates. We maintain our FY15E estimates. Subsequently, we estimate UltraTech to deliver EBITDA & PAT CAGR of ~15% during FY13‐15E period. We expect UltraTech can deliver EBITDA growth of 20% YoY in the Dec‐qtr and ~45% YoY in the Mar‐qtr of FY14 which in‐turn can lead to 5% YoY EBITDA growth in FY14E. Hence, we maintain our positive stance on the stock and recommend “BUY” the stock on near term stock price declines. We value the stock at 8.7x its FY15E EBITDA (replacement cost of US$144 per MT.
3
October 21, 2013
Ultratech Exhibit 5: Profit & Loss Statement (Standalone) Y/E Mar (Rs mn) Net Revenues % growth Operating expenditure EBITDA % growth Depreciation EBIT Interest expenditure Other income PBT Tax Adjusted PAT / Net profit % growth EBITDA/mt (Rs)
FY11
FY12
FY13
FY14E
FY15E
133,228 87.3 106,464 26,764
183,098 37.4 141,625 41,474
201,749 10.2 154,995 46,755
219,373 8.7 170,342 49,031
264,713 20.7 202,030 62,682
31.5 7,603 1,452 20,612 2,725 17,887 3,791 14,096
55.0 8,886 3,719 36,307 2,239 34,068 9,467 24,601
12.7 9,454 3,050 40,351 2,097 38,254 11,700 26,554
4.9 10,824 3,630 41,837 3,450 38,387 11,516 26,871
27.8 13,494 3,761 52,949 3,560 49,389 15,558 33,832
28.9 755
74.5 995
7.9 1,122
1.2 1,121
25.9 1,263
FY11
FY12
FY13
FY14E
FY15E
Source – Company, Karvy Institutional Research
Exhibit 6: Balance Sheet (Standalone) Y/E Mar (Rs mn) Cash & equivalent
1,447
1,896
1,427
1,202
1,539
Liquid investments Debtors
34,828 6,023
34,509 7,660
46,120 10,173
49,120 10,818
58,620 13,054
Inventory Loans & advances
19,565 14,662
20,359 26,259
23,505 21,563
26,445 19,041
31,911 20,664
Investments Gross Block
2,475 179,423
3,378 190,138
4,968 213,822
4,968 260,822
4,968 292,341
Net Block CWIP
114,003 6,831
116,341 18,966
131,223 35,054
167,399 17,527
185,423 14,000
Miscellaneous Total assets
1,727 201,561
1,535 230,904
1,733 275,765
1,737 298,257
1,749 331,928
Current liabilities & provisions Debt
34,538 41,446
41,947 41,529
48,598 54,085
53,695 47,618
61,388 43,413
Other liabilities Total liabilities
18,917 94,901
18,830 102,306
20,736 123,419
20,936 122,249
21,136 125,937
2,740 103,920 106,660 201,561
2,741 125,857 128,598 230,904
2,742 149,603 152,345 275,765
2,742 173,266 176,008 298,257
2,742 203,249 205,991 331,928
Shareholdersʹ equity Reserves & surpluses Total networth Total networth & liabilities
Source – Company, Karvy Institutional Research
4
October 21, 2013
Ultratech Exhibit 7: Cash Flow Statement (Standalone) Y/E Mar (Rs mn)
FY11
FY12
FY13
FY14E
17,833
33,929
38,254
38,387
49,389
7,657 2,725
9,026 2,239
9,454 2,097
10,824 3,450
13,494 3,560
(5,179) (1,531)
(7,340) 158
(7,165) (3,887)
(11,316) 3,709
(15,358) (2,286)
(1,419) 252 20,339 (12,067)
(3,002) (430) 34,578 (31,575)
(3,051) 25 35,727 (32,676)
(3,630) ‐ 41,424 (29,473)
(3,761) ‐ 45,039 (27,991)
(5,234) 1,221 (16,081) 12
1,682 477 (29,416) 83
(10,911) 562 (43,025) 12,557
(640) 1,270 (28,844) (6,467)
(7,139) 1,400 (33,730) (4,205)
14 (2,935)
16 (2,907)
79 (3,268)
‐ (3,450)
‐ (3,560)
(1,405) (4,314)
(1,905) (4,714)
(2,539) 6,829
(2,887) (12,804)
(3,207) (10,972)
(55)
447
(469)
(224)
337
FY11
FY12
FY13
FY14E
FY15E
20.1 15.6
22.7 20.0
23.2 20.2
22.4 19.2
23.7 20.1
10.7 13.6
13.5 10.4
13.3 10.9
12.3 11.9
12.9 11.4
0.0 1.1
0.0 1.0
0.0 0.9
(0.0) 1.0
(0.1) 1.0
13.7 18.1
14.7 19.1
13.5 17.5
12.4 16.2
14.1 18.5
18.5
20.9
18.9
21.6
17.7
Y/E Mar
FY11
FY12
FY13
FY14E
FY15E
EPS (Rs) DPS (Rs)
51.4 6.0
89.8 8.0
96.8 9.0
98.0 10.0
123.4 12.0
PBT Depreciation Interest Tax paid (Incr) / decr in net WC Other income Other non cash items Cash flow from operating activities (Incr) / decr in capital expenditure (Incr) / decr in investments Others Cash flow from investing activities Incr / (decr) in borrowings Issuance of equity Dividend paid Interest paid Cash flow from financing activities Net change in cash
FY15E
Source – Company, Karvy Institutional Research
Exhibit 8: Key Ratios Y/E Mar (%) EBITDA margin EBIT margin Net profit margin Dividend payout ratio Net debt: equity Gross block turnover RoCE RoIC RoE Source – Company, Karvy Institutional Research
Exhibit 9: Valuation Parameters
Book value per share (Rs)
389
469
556
642
751
P/E (x)
38.2
21.9
20.3
20.0
15.9
P/BV (x)
5.0
4.2
3.5
3.1
2.6
20.0
12.6
10.9
10.6
8.1
EV/Sales (x)
4.1
2.9
2.5
2.4
1.9
EV/mt(USD)
178
175
162
138
135
EV/EBITDA (x)
Source – Company, Karvy Institutional Research
5
Institutional Equities Team Rangachari Muralikrishnan
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Analysts
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Stock Ratings Buy Hold Sell
: : :
Absolute Returns > 15% 5‐15%
