UltraTech Cement

Rating Matrix
CMP

Rs. 3121

Rating

Buy

ULTRATECH CEMENT LIMITED is a leading

cement manufacturing company in India with
total 63 Million Tonnes/annum installed capacity.
UltraTech Cement, being the most aggressive
among its peers in adding capacity, has highly
efficient operations and sizeable capacity to
remain the major beneficiary of acceleration in
demand growth in Indian economy.

Potential Price Range Rs.3400-Rs. 3550

Target Period

12 Months

Upside Potential

Upto 14%

52 week H/L

Rs 3,196/1,820

Face value

Rs.10

Sector

Cement

Cement Consumption Witnessing Improvement

Key Financials (Standalone)

Rs. Crore

Particulars

FY13

FY14

FY15E

FY16E

FY17E

Net Sales

20172

20280

23599

29252

31929

Growth

9.5%

0.5%

16.4%

24.0%

9.2%

EBIDTA
EBIDTA
Margin

4675

3818

4606

5899

6426

23.2%

18.8%

19.5%

20.2%

20.1%

PAT

2656

2144

2296

2855

3226

NPM

13.2%

10.6%

9.7%

9.8%

10.1%

EPS

96.9

78.3

83.7

104.0

117.6

ROE

17.4%

12.5%

12.0%

13.2%

13.1%

ROCE

17.2%

11.3%

11.1%

12.9%

13.1%

Net Worth

15235

17098

19127

21668

24556

556

624

697

790

895

BVPS

Shareholding Pattern as on Dec 2014

Particulars

Dec'14

Sep'14

Jun'14

Mar'14

Promoters

61.7%

61.7%

61.7%

61.7%

FIIs

19.5%

19.9%

20.4%

21.0%

5.9%

5.7%

5.3%

4.9%

10.6%

11.0%

10.8%

10.6%

2.3%

1.8%

1.8%

1.8%

DIIs
Non
Institutions
Others

www.choiceindia.com

Cement industry, being highly sensitive to countrys

GDP growth, has been witnessing improvement in
demand during current fiscal led by recovering
economic scenario. Revival in construction activity,
increasing demand from housing sector, low base of
last year as well as delayed onset of monsoons this
year has augmented the domestic consumption.
Indian cement industry has shown significant
recovery in demand and profitability in FY15. The
growth in cement production picked up to 7.9%
during the first nine months of FY15 as against 3.7%
in the corresponding period last fiscal. We expect a
strong recovery in Indian cement demand led by
thrust of government given for infrastructure
development, low-cost affordable housing projects
and setting up of smart cities.
UltraTech to remain Prime Beneficiary
Acceleration in Demand Growth

of

UltraTech is a leading cement manufacturing

company in the country having 63 MT/annum
installed capacity and accounts for around 17% of
domestic market revenue. UltraTech, being the
largest pan India player, will be the major
beneficiary of acceleration in demand growth in the
Indian markets. UltraTech is also the lowest-cost
producer amongst Indian cement players, moreover
proactive initiatives taken by the management to
save energy and logistics cost will further strengthen
the company position in market.

UltraTech Cement
Aggressive Capacity Expansion to lead to Volume Growth for Company
To keep volume growth ahead of other players, the company adopts a strong aggressive
expansion policy and has made capacity expansion of CAGR of 23% as compared to peers
average CAGR of 13% over the past five years. UltraTech has earmarked Rs.10,000 crores
to be incurred in setting up the remaining grinding units, clinkerisation plants, cement
terminals and brownfield expansion in Rajasthan. These are likely to be commissioned in a
phased manner by 2015. The acquisition of the 4.8 MTPA Gujarat Cement Unit of Jaypee
Cement Corporation also strengthened its presence in the growing Western market.
Moreover, the latest acquisition of Jaiprakash Associates two cement units and associated
power plants in Madhya Pradesh (MP) will help UltraTech to strength the presence in eastern
side of MP.

Healthy Operating Cash Flow and low debt/equity to Fuel Expansion

Operating cash flows for UltraTech is expected to remain over Rs.4,000 crore annually
during the projected FY14-19E period. The company is well positioned to reap the benefit of
a recovery in domestic demand and will generate healthy free cash flows during the
forecasted five years period. Furthermore, with a minimal debt in capital structure, UltraTech
has strong balance sheet and ongoing capacity expansion plans are not expected to add any
pressure to balance sheet.

Valuations
To value the UltraTech stock, we conducted fundamental analysis using the EconomyIndustry-Company (E-I-C) framework and used the Discounted Cash Flow (DCF) as well as
Relative Valuation (RV) methods. On the basis of DCF and RV, we arrived at Potential Price
Range of Rs.3400-Rs.3550 for a period of 12 months. With the double digit potential upside,
we have a BUY recommendation on the stock.

www.choiceindia.com

UltraTech Cement
DCF VALUATION
Particulars
Net Sales
EBITDA
NOPLAT
Free Cash Flows
PV of Estimated FC Flows
Horizon Value
PV of Estimated Perpetuity
Flows
Total Present Value (EV)
Fundamental Value of Equity
No of Outstanding Shares
Fundamental Value per Share

FY12
FY13
FY14
FY15E
18427.4
20172.4
20279.8
23599.0
4242.6
4674.6
3817.9
4605.8
3295.6
3504.6
3186.9
3773.8
236.6
402.1
201.9
1485.6
It is assumed Free Cash flow beyond FY19 grows at 8%
1326.8

FY16E
29252.0
5899.1
4647.4
-1563.3

FY17E
31928.8
6426.5
5092.0
1560.9

-1246.8

1111.8

Rs. Crore
FY18E FY19E
36885.8 40576.9
7687.8 8861.7
6147.3 7040.8
1172.6 5984.8
745.9

3399.8
162617.3
92377.6

97715.0
92842.2
27.4
Rs.3383.5

Beta
WACC

DCF Sensitivity
Continuing Growth (%)

1.11
11.97%
Rs. Crore

Weighted Average Cost of Capital (%)

11.00%

11.50%

11.97%

12.00%

12.50%

13.00%

14.00%

6.00%

2768

2460

2215

2203

1987

1802

1504

6.50%

3087

2716

2427

2413

2162

1949

1612

7.00%

3487

3030

2682

2665

2368

2121

1735

7.50%

4000

3422

2993

2973

2615

2323

1876

8.00%

4684

3926

3383

3358

2918

2567

2042

8.50%

5642

4598

3886

3853

3296

2864

2238

9.00%

7078

5538

4557

4513

3783

3236

2472

Relative Valuation
Particulars

FY12

FY13

FY14

FY15E

FY16E

FY17E

FY18E

FY19E

BVPS

469.3

556.0

624.0

697.1

789.7

894.9

1030.4

1190.3

EBIDTA (RS. Crore)

4242.6

4674.6

3817.9

4605.8

5899.1

6426.5

7687.8

8861.7

Valuation Parameters

P/BV

EV/EBIDTA

Industry Average

4.53

18.2

At CMP of Rs.3121, the stock is trading at 3.95x its FY16E BVPS of Rs.789.7, 3.49x FY17E BVPS and 16.1x of its EV/EBIDTA
FY16E and 14.1x EV/EBIDTA FY17E. On the basis of Relative Valuation we arrive at Potential Price at Rs.3580.
Peer Group Analysis

(@TTM Price)

Market Cap. ( Rs Crore)

Book Value

ACC (2014)
26,636.3

Ambuja Cement (2014)

33,699.3

Ultra-tech Cement (FY14)

68,511.9

8,235.61

10,103.33

17,097.51

Debt / Equity

0.00

0.002

0.28

P/E (Trailing) *

22.78

22.49

32.0

P/BV

3.23

3.34

4.0

EV/EBIDTA

17.47

16.21

19.1

P/Sales

2.27

2.67

1.3

EPS
Return on Net Worth

www.choiceindia.com

62

9.7

78

13.3%

12.8%

12.5%

UltraTech Cement
Improving Indian Economic Condition
Cement industry is highly correlated to economic scenario as cement demand is largely
depended upon housing segment and growing industrial and infrastructure sector. Indian
cement industry volumes grow 11.2x Indias GDP. After registering an average growth rate
of 8% during FY08-FY12, Indian economic growth had slowed down to below 5% (with 200405 base year) during the past two financial years. Prevailing high interest rate, stubborn
inflation, low investments and slow execution of infrastructure projects were the leading
factors, impacted countrys economy growth. However, Indian economy has shown signs of
nascent recovery and grew by 5.5% during the first half (April-September) of FY15 as
compared to 4.9% in the same period in FY14. Besides, key macro-economic indicators
such as inflation, industrial production, CAD and infrastructure activity are also reviving,
putting positive influence on economic growth. Industrial production during April-December
FY15 grew by 2.1% as against 0.1% in the April-December FY14, indicating that the
economy is far better position now from previous fiscal. Indian economic growth is likely to
improve to 5.5% in FY15 and further enhanced to 6-7% in FY16 and FY17. Improved
consumers sentiments, the renewed policy thrust by new government and a pickup in
consumer demand are likely to provide impetus to economic growth in coming future. We
expect 8% growth for Indian economy during the stable growth period. With the gradually
growing Indian economy, per capita income of people in India has been growing at a pace of
CAGR of 10% over the eight years. Household income in the top 20 boom cities in India is
expected to grow at around 10% annually over the next ten years, which is likely to increase
cement demand.

Core Infrastructure Index

200
154.7
138.4

150

167.6
160.5

145.3

129.9

100

50

0
FY10

www.choiceindia.com

FY11

FY12

FY13

FY14

FY15*

UltraTech Cement
Industry Scenario
Indian cement industry has evolved significantly over the last two decades and today the sector is
aptly described as the next sun rise sector to Indian economy. The Indian cement Industry is very
large, second only to China in terms of installed capacity at around 380 Million Tonnes (MT) per
annum, and has grown at a brisk pace in recent years on back of rising infrastructure activities,
increasing demand from housing sector and industries. India is the second largest producer of
cement and housing sector is the biggest demand driver of industry, accounting for about 65% of
the total countrys consumption. Infrastructure and commercial real estate & industrial sector
constitute 20% and 15% share in total domestic cement demand. Indian cement industry is highly
organized with top 12 cement firms have around 70% share in the total countrys demand.
However, Indias per capita consumption of cement still remains substantially lower at 195 kg
when compared with the world average at 520 kg, showing strong growth potential in the domestic
market. Over the past two fiscals, cement demand in India remained sluggish due to the economic
recession, forcing the manufactures to operate at low capacity at around 72%. Amid expectation
of strong growth in future, industry added 65 MTPA cement capacities between
FY11-FY14, as against 92 MTPA in FY08-FY11.

Capacity, Demand Growth

16.0%

500
14.0%

Million Tonnes

400
300

12.0%
9.8%

8.5%

8.0%

7.0%

200

5.4%

6.1%

5.2%

100

4.0%
2.5%

0.0%
FY08

FY09

FY10

Cement Capacity

www.choiceindia.com

FY11

FY12

FY13

Cement Demand

FY14

FY15E

Demand Growth

Over 100
MT surplus
capacity

UltraTech Cement
Revival in Economic Growth to provide Impetus to Sector
The cement demand scenario in India has improved significantly in current fiscal driven by
reviving economic condition. The growth in cement production picked up to 7.9% during first nine
months of FY15 as against 3.7% in the corresponding period last fiscal and 3.0% in FY14. The
outlook looks very much promising for domestic cement industry given the huge untapped
housing demand and increasing infrastructure development in the country. Cement consumption
is expected to improve to 6.1% in FY15E from 2.5% in FY14. With the expectation of 8.5-9%
growth in coming years, all-India cement capacity utilization is likely to improve to around 80% by
FY17.
Furthermore, industry players are presently also benefiting from easing of cost side pressures.
Power & fuel and freight costs are the major costs for industry with a share of 28% and 29% in the
operating cost structure. Global coal and diesel prices have declined by around 20-25% during the
past twelve months which is expected to reduce the power & fuel and freight costs for cement
companies.

Financial Forecasts and Projections (UltraTech Cement)

We expect net sales of the company to grow at a CAGR of 14.9% between FY14-FY19E mainly
led by volume improvement on the back growing economy. Cement volumes are expected to
grow by a CAGR of 9% to 63.75 MT in FY19E from 41.13 MT in FY14.
EBIDTA margin is expected to improve to around 20% in next three forecasted years and further
rise to 22% by FY19, given the company ongoing initiatives to control the operating expenditures
mainly fuel and freight costs.
We expect net profits to grow at a CAGR of 18% between FY14-FY19E as we believe that growth
going forward is likely to be led by volume as well as strong pricing improvement in FY18E and
FY19E.

www.choiceindia.com

UltraTech Cement
Company Analysis
ULTRATECH CEMENT LIMITED is a leading cement manufacture company in India with total 63
Million Tonnes (MT) installed capacity. Earlier the company was incorporated on 24th August
2000 as Larsen & Toubro cement, however it was demerged and acquired by Grasim later and
renamed as Ultra Tech Cement in 2004. UltraTech has 11 composite plants, 101 ready-mix
concrete plants, one white cement plant, one clinkerisation plant, 15 grinding units and six bulk
terminals. The company has wide spread retail network in the country and thus accounts for
around 17% share in total revenue of the Indian cement industry. Besides, the company exports
market span countries around the Indian Ocean, Africa, Europe and the Middle East. The
company has maintained its leadership position in industry supported by a strong product profile,
premium brand image, geographically widespread manufacturing facilities and extensive
distribution network. To keep volume growth ahead of peer members, the company adopts a
strong aggressive expansion policy and has witnessed capacity expansion of CAGR of 23% as
compared to peers average CAGR of 13% over the past five years.
Products and Services
UltraTech Cement provides a host of products ranging from grey cement to white cement, from
building products to building solutions and an assortment of ready mix concretes catering to
varied needs and applications of the construction industry. Though, companys flagship cement
products come into the category as Ordinary Portland Cement, Portland Blast Furnace slag
Cement and Portland Pozzolana Cement. Among these, Ordinary portland cement is most
commonly used for a wide range of applications such as dry-lean mixes, general-purpose readymixes, high strength pre-cast and pre-stressed concrete. On the other hand, Portland blastfurnace slag cement, having lighter colour, better concrete workability and flexural strength, is
used in a concrete mixture to make concrete better and more consistent. The uses of portland
pozzolana cement give strength and enhance durability and helps in minimizing shrinkage and
thermal cracking, increases workability and cohesion in concrete and mortar.

www.choiceindia.com

UltraTech Cement
Business Model Analysis
Core Capabilities: Superior quality cement, concrete and allied products and superior strength
for durable structure that can weather any condition are the top features of the company which
derived the UltraTech to market leader position. Apart from that, well-spread network with multiple
logistic feed, bringing in innovation in every application, connectivity and ensure availability of
products and deep collaboration with customers in providing end-to-end solution are the other
core capabilities of the firm, driving the company growth.
The company has also showed significant process on technological front. To improve process
efficiency and product quality, the company is using different newer generation, mathematical and
computational modeling. The company has also made multiple collaborative research projects
with national and international institutes for future generation building materials, providing training
to R&D personnel and increased focus towards energy conservation through various in-house
initiatives. Robust development on technological front has been helping the firm to reduce specific
energy consumption, increase use of alternative fuels, compliance with PAT (Perform, Achieve
and Trade) targets and decline the operation costs and improve product quality.

Premium Product Quality, Uses of New Technology adding Value to Firm

The Company is specialized in cement manufacturing product and thus primarily generates
revenue by the sale of cement. Top features of the firm such as to provide premium quality
cement, concrete and allied products, maintain well distributed sales network, uses of new
technology and strong aggressive expansion policy approach have been directly contributing
toward the value addition of the company. As the company has been maintained strong value
proposition, UltraTech has become the most trusted and preferred brand of engineers, builders,
contractors and individual house builders and its cement is used in vital structures such as dams,
bridges, flyovers, airports, metro railways apart from residential and commercial structures.
UltraTech Cement has been honoured with the title of the consumer validated award
'SUPERBRAND' for the years 2011, 2012, 2013 and 2014 by the Superbrands Council, a global
organisation that recognizes, showcases and pays tribute to the best brands in each country.

www.choiceindia.com

UltraTech Cement
Targets Customers: UltraTechs business is mainly driven by the construction activity, which
includes infrastructure development and housing segment. About 40% of the demand comes from
rural housing, while 20% comes from urban housing, 20% from infrastructure, and the balance
from other commercial construction. Amid expectation of strong growth in infrastructure segment,
the company has also started focusing on infrastructure development over the recent years. Some
of the India's most ambitious infrastructure projects such as Bandra Worli Sea Link, Kolkata and
Bangalore metro link are powered by UltraTech. Growing economy leading to high demand from
housing segments and increasing infrastructure development in the country are likely to provide
impetus to company growth in future.
Diversified Presence with Well Distributed Network across India
UltraTech cement has well distributed network sales mix across India, however majority of
revenue coming from northern and western India at around 30% and around 29%. Though, the
company has strong present in all regions of the country. UltraTech has robust logistics network of
30 plants, 500 plus warehouses and 150 plus railheads and 50000 plus dealers, retailers and
institutional customers. With the robust processes for planning, distribution, network design, order
execution, visibility and optimal resource utilization, UltraTech serves 14000 orders per day by
using a mix of various logistics modes including rail, road and sea, keeping its average realization
healthy as compared to the peers. With an eye on the future, UltraTech is adopting some best in
class Supply Chain Management (SCM) processes such as web and mobile based order
management system with real time visibility of order status, customer service level measurement
on real time basis, GPS based vehicle tracking system for dedicated fleet and automation at
secondary service points like railheads and godowns.

Regional Presence
Business Analysis
UltraTech collects 99% of revenue from the
domestic markets. In the Indian market,
UltraTech cement is the market leader and
accounts for around 17% share in the cement
business followed by ACC Cement and Ambuja
Cement with a share of around 8% and 7%.
Ultratechs main business-cement production is
characterized by high capital intensity, solid
barriers to entry, high energy intensity; besides
the company's strong investment in plant
efficiency has helped establishing solid costcompetitiveness in regional markets. The
company will continue its dominance in the
domestic market.

www.choiceindia.com

South
20%

Exports
6%

North
30%

East
15%
West
29%

UltraTech Cement
Sales Volume likely to witness Firm Recovery in Future
In line with the industry trend, sales growth of the UltraTech cement was remained sluggish over
the past two fiscal owing to the prevailing economic slowdown. Indian economys growth declined
to a decade low at 4.5% in FY13 and 4.7% during FY14 (with 2004-04 base year). Sluggish
infrastructure development in the country as well as subdued demand for Indias housing sector
owing to the prevailing high interest rates as well as high inflation are the leading factors
responsible for the declining domestic cement consumption. During the FY14, sales growth has
remained flat at Rs 20,279 crore, while net profit declined by 19% YoY to Rs.2144 crore due to the
high operating expenditure amid low demand.
However, the situation is improving and the recent quarter (Q3FY15) financial result indicated
strong growth in volume. UltraTech sales volume grew by 16% to Rs.5601.4 crore in Q3FY15 from
Rs.4818 crore in the same quarter of previous fiscal. Despite showing strong performance in sales
volume, net profit of the company declined marginally by 1.5% due to the high finance cost rose
70% to Rs.153.9 crore from a year ago. Though EBIDTA margin during the reported quarter was
rose to 20% YoY driven by high sales volume. Improving fundamentals of Indian economy are
providing impetus to domestic demand. During the 9MFY15, sales volume increased by 17% to
Rs.16722.8 crore from Rs.14319.9 crore in 9MFY14. We expect a strong recovery in sales volume
at CAGR of 14.9% to Rs.40576.9 crore in FY19E from Rs.20279.8 crore recorded in FY14.

Expect Growth at CAGR of 14.9% in Net Sales

during Projected Period

Sales Growth (up 16% YoY) robust during

Q3FY15 (Rs. Crore)

5960
35000
30000

4522

5692

5429

5601.4

4818

Rs Crore

25000
20000
15000
10000
5000
0

FY12

FY13

www.choiceindia.com

FY14

FY15E FY16E FY17E

Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15

UltraTech Cement
Cost Analysis
Among total operating expenditure, power and fuel and freight are the two major expenditure of
the company with a share of around 25% and 27% in the total company expenditure. UltraTechs
continued focus on controlling cost and optimization of fuel mix helped in curtailing cost to some
extent. Power and fuel cost eased by around 6% YoY to Rs.1005 per sales tonne during FY14.
Ongoing focus on improving efficiencies in consumption, increasing usage of pet coke and
alternative fuel and softening in imported coal prices helped the company to lower energy cost.
However, the saving in energy cost was offset by the soaring fright cost. The company reported
freight and forwarding cost at Rs.4580 crore in FY14 which was around 8.45% higher on annual
basis. Furthermore, during the first nine month of this fiscal, freight and forwarding cost increased
by 22% to Rs.3939.5 crore as compared to Rs.3215.3 crore during the same period of
corresponding fiscal. Freight cost is likely to increase at a CAGR of 12.4% during FY14-FY19E.
On the other hand, power and fuel cost is expected to remain Rs.1100-1200 per tonne during
FY14-FY17E. EBIDTA margin of the company, which declined to 18.8% in FY14, is expected to
improve to above 20% in next five year mainly driven by high revenue growth as well as company
continued policy for cost control and optimization of fuel.

EBIDTA Margin to Improve in Coming Years

Gradual reduction in Energy Cost

4350

4300
1164
1067

1088

1039

1000
800

23.2%
20.0%

19.5%
18.8%

20.2%
600
20.1%
400
200

15.0%

0
FY13

1080

1200

FY14

EBIDTA/Tonne (Rs.)

www.choiceindia.com

FY15E

1060
4250

958

928

23.0%

FY12

1082
1070

FY16E

FY17E

EBITDA Margin

Rs Crore

25.0%

1100

4304

4299

1040

4200
1020
4150

1005

4100

4135

1000
980
960

4050
FY12
Power & Fuel

FY13

FY14

Energy Cost Rs per tonne

UltraTech Cement
Realization to pick up led by Improving Demand
Amid expectation of strong growth in future arising out of the thrust given for infrastructure
development in the country by the government, industry witnessed Rs.50,000 crore rapid
expansions during 2007-2014 to nearly double cement capacity from 180 MT, fastest in domestic
sectors history. As against the CAGR of around 12% witnessing during FY08-FY14, Indian cement
consumption grew by CAGR of about 8-9%, forcing the manufactures to operate at low capacity.
On the other hand, cement prices continued to remain under pressure owing to the weak demand,
impacting margins of the industry players. In line with the industry, UltraTech capacity utilization
declined below 70% in FY14 and realization per tonne also remained sluggish due to the
prevailing low cement prices in the market driven by subdued demand and over-capacity.
However, an improvement in realization is expected on the back of recovery witnessing in the
domestic economy leading to rise in Indian cement consumption. Realisation per tonne is
expected to improve to Rs.5,150/tonne in by FY16E and Rs.5,408/tonne in FY17E. Installed
capacity is likely to increase to 71 MT by FY16E and capacity utilization is projected to remain at
80-85 MT in the next five years.

UltraTech Capacity Expansion Plans

Million Tonnes

80.0

60.0

40.0

79.4%

73.8%

82.0%

100.0%
80.0%

69.9%

60.0%

58.4

54.4

49.7

80.0%

74.0%

63.0

71.0

72.0
40.0%

20.0

20.0%
0.0%

0.0
FY12

FY13

FY14
Installed Capacity

FY15E

FY16E
Capacity Utilisation

FY17E

Realisation per tonne (Rs)

5408
5023

5150
4931

4906

FY14

FY15E

4633

FY12

www.choiceindia.com

FY13

FY16E

FY17E

UltraTech Cement
UltraTechs Net Profit to Improve during Projected Period
During the FY14, net profit declined to Rs.2,144 crore which was 19% lower than the previous
year profit. In spite of sluggish revenue due to economic recession, high operating cost also put
pressure on the margin. With the recovery in economic situation, the financial condition of
company has improved and during first three quarter of FY15, PAT grew significantly by 7.2% to
Rs.1399 crore. Companys PAT is expected to increase to Rs.3226.1 crore in FY17E and further
enhance to Rs.4903.5 crore in FY19E. Accordingly, Return on Equity (ROE) is likely to improve
to 13.1% in FY17E and 15% in FY19E from 12.5% in FY14.

Portability Trend of UltraTech (PAT Rs. Crore)

4903.5
4153.6
2855
2656

3226

2296
2144

FY13

FY14

FY15E

FY16E

FY17E

FY18E

FY19E

ROE
17.4%
12.5%

FY13

FY14

www.choiceindia.com

12.0%

FY15E

13.2%

FY16E

13.1%

FY17E

14.7%

FY18E

15.0%

FY19E

UltraTech Cement
Low Debt/Equity to fuel Capital Expansion
UltraTech cement has strong balance sheet with minimal debt (D/E of 0.3:1) as compared to other
industry players. Though company D/E ratio is likely to increase to 0.44 in FY15E due to the debt
financing required for acquisition of Jaiprakash Associate plant located in Madhya Pradesh, this
expansion plan will not put any stress to the balance sheet and in turn will further strengthen the
companys position in the industry.
Furthermore, the company has made a strategy to maintain highest credit rating for both long- and
short-term debt which in turn is helping firm to attract the best proposals from lending agencies at
fine pricing levels.

Debt/Equity Ratio

0.44

0.30

FY12

www.choiceindia.com

0.43
0.36

0.29

FY13

0.28

FY14

FY15E

FY16E

FY17E

UltraTech Cement
Growth Strategies
Considering that freight cost accounting for around 28% of the total expenditure, UltraTech has
been taking certain initiatives to control logistic cost. As cement is extremely bulky commodity, the
firm is investing optimum mix of rail, road and sea transportation, which will lead to the quick
dispatch of material from the plants, as well as better customer service and lowered freight cost.
Furthermore, the company is also investing to enhance power capacity, which stands at around
709 mega watt and caters to around 80% of Companys power requirement. Continued initiatives
for cost optimization are likely to improve EBIDTA margins in coming years.
UltraTech focus on creation on new capacities through organic and inorganic growth. Despite the
slowdown in the cement industry, UltraTech acquired the 4.8 mtpa Gujarat Cement Unit of Jaypee
Cement, moreover, company organic capacity expansion plans are also on track to cater well the
increasing demand from the housing and infrastructure sectors.

Acquisition of JP Associates' MP plant to enhance UltraTech Market presence

UltraTech Cement planned to acquire Jaiprakash Associates' two cement units and associated
power plants in Madhya Pradesh for Rs.5,400 crore. Among these units, one plant is situated at
Bela, Madhya Pradesh with clinker capacity of 2.1 MTPA and cement grinding capacity of 2.6
MTPA along with captive power plant (CPP) of 25 MW. Other integrated cement plant include
clinker capacity of 3.1 MTPA and cement grinding capacity of 2.3 MTPA at Sidhi, MP along with
CPP capacity of 155 MW. This acquisition deal will provide impetus to growth as UltraTech does
not have a significant presence in eastern side of MP, while these are well established assets with
good market share.

Outlook
We believe that likely revival in economic growth, Indias low per capita consumption of cement,
increasing urbanization and reviving growth in infrastructure and industrial sectors will continue to
act as the driving forces behind the rise in demand of cement. To value the UltraTech stock, we
conducted fundamental analysis using the Economy-Industry-Company (E-I-C) framework and
used the Discounted Cash Flow (DCF) as well as Relative Valuation (RV) methods. On the basis
of DCF and RV, we arrived at Potential Price Range of Rs.3400-Rs.3550 for a period of 12
months. With the double digit potential upside, we have a BUY recommendation on the stock.

www.choiceindia.com

UltraTech Cement
Key Risk

Economic Uncertainties:
Demand of cement in India is cyclical and barring short term disruptions it grows entirely in
tandem with economic growth. UltraTech Cement demand is mainly derived from the domestic
housing real estate and infrastructure sectors, which are closely linked to overall economys
growth. Though, Indian economy growth is reviving, prevailing high interest rates in order to
contain the inflation can impact the housing sectors demand and infrastructure development.

Excess Cement Capacity in Industry to Put Pressure on Realization:

Currently, Indias cement production capacity stands at around 380 MT, which is over 100 MT
higher than around 262 MT cement demand. The industry had created the capacity on the back of
government's projection of potential cement demand arising out of the thrust given for
infrastructure development in the country and the allocation of funds earmarked for the purpose.
Though, the demand of cement is likely to improve in coming years, the surge in cement price
would be marginal in next two fiscal as one fourth of the industrys capacity is presently remain
unutilized.

Rising Cost of Manufacturing:

EBIDTA margin of the company declined to 18% in FY14 from around average 23% EBIDTA
margin recorded in previous few fiscal on account of high raw material and freight expenditures.
Therefore, managing these costs at appropriate level could a challenge for management going
forward.
Growing Presence of Regional Players:
The presence of small players has been growing across some region of the country. Most of these
cement players have been constantly increasing their installed capacity in order to cater to
increasing cement demand. Besides this, they are also creating fierce or irrational competition in
regional markets that leads to unfavorable pricing also would compromise UltraTech Cements
profitability.
Government Regulations:

Cement industry is a freight intensive sector and transporting cement and coal over long
distances can prove to be expensive for industry players. Therefore, the Government decision to
hike the rail freight rate can put pressure on industry margins.

www.choiceindia.com

UltraTech Cement
Balance Sheet

Profit And Loss Statement (Rs. Crore)

Particulars
Net Sales
% Growth

FY13

FY14

FY15E

FY16E

FY17E

FY18E FY19E

20172.4 20279.8 23599.0 29252.0 31928.8 36885.8 40576

9.5%
0.5%
16.4% 24.0%
9.2%
15.5% 10.0%

Total Revenue 20478.7 20608.7 23948.1 29627.1 32344.0 37338.6 41068

% Growth
9.5%
0.6%
16.2% 23.7%
9.2%
15.4% 10.0%
EXPENDITURES

Staff Costs

968.4

% of Net Sales 4.8%

Other
Operating
costs

1014.6

1145.7

1401.7

1552.6

5.0%

4.9%

4.8%

4.9%

11387.6 12011.1 13599.7 16978.3 18560.3

% of Net Sales 56.5%

59.2%

57.6%

58.0%

58.1%

Other
Expenses

3141.9

3436.2

4247.8

4972.8

5389.5

% of Net Sales 15.6%

16.9%

18.0%

17.0%

16.9%

Total
Expenditures

15497.8 16461.9 18993.2 23352.9 25502.4

% of Net Sales 76.8%

EBITDA
4674.6

81.2%
3817.9

80.5%
4605.8

79.8%
5899.1

79.9%
6426.5

EBITDA
Margin %
Growth %

23.2%
#REF!

18.8%
-18.3%

19.5%
20.6%

20.2%
28.1%

20.1%
8.9%

Depreciation &
Amortisation
945.4
EBIT
3729.2

1052.3
2765.6

1274.3
3331.5

1579.6
4319.5

1724.2
4702.3

Financial
Charges

210.0

319.2

552.5

588.2

556.9

Other Income
PBT

306.3
3825.5

328.9
2775.3

349.1
3128.1

375.1
4106.5

415.1
4560.5

Pre-tax Margin
%
19.0%
Tax
1170.0

13.7%
631.0

13.3%
832.0

14.0%
1251.8

14.3%
1334.5

Effective Tax
Rate %

30.6%

22.7%

26.6%

30.5%

29.3%

Reported PAT 2655.5

2144.3

2296.1

2854.7

3226.1

Net Profit
Margin %

10.6%

9.7%

9.8%

10.1%

13.2%

Growth in
Reported PAT
%
#REF!
Extrodinary
Income
Adjusted PAT

-19.3%

7.1%

24.3%

13.0%

0.0

0.0

0.0

0.0

0.0

Particulars

FY14

FY15E

FY16E FY17E FY18E FY19E

Gross Asset 21447.5 25252.3 27846.6 33235.0 36803.7 41994.6 43900.2

Accumulate
Depreciation

9377.3 10651.6 10651.6 12231.2 13955.4 15891.9 18001.9

Capital WIP 3505.3 2038.4 2769.8 3743.4 4163.5 4235.9 4453.2

Net Fixed
Asset
16627.7 17913.5 19964.8 24747.2 27011.8 30338.5 30351.5

1799.3 1966.7
4.9%

4.8%

Investments
& Deposits 6091.9 6571.7
Current
Asset
4689.3 5268.3

22850.
Cash
21052.1
5
Inventories
57.1% 56.3% Trade
Debtors
Loans and
6346.5 6898.1 Advances
Other
17.2% 17.0% Current
31715. Assets
Current
29198.0
2
Liabilities &
Provisions
79.2% 78.2%
Net Current
7687.8 8861.7 Asset
Excluding
20.8% 21.8% Cash
19.6% 15.3%
Capital
Deployed

1936.5 2110.0
5751.3 6751.7 Non-Current
Liabilities
510.0 518.5
Borrowings
Other Long452.8 491.1 term
5694.1 6724.3 Liabilities
Deferred
15.4% 16.6% Tax
Liabilities
1540.5 1820.8
Long-term
Provisions
27.1% 27.1% Total
Liabilities
4153.6 4903.5 Contingent
Liabilities
11.3% 12.1% Share
Capital

28.8% 18.1%
0.0

0.0

2655.5

2144.3

2296.1

2854.7

3226.1

27.4

27.4

27.4

27.4

27.4

4153.6 4903.5 Capital

Employed
27.4
27.4

Adjusted EPS

96.9

78.3

83.7

104.0

117.6

151.4

DIFF
178.7

142.7

10957.0

9516.7 9803.5 9741.7 14826.1

5856.7

7066.9 7838.6 9175.8 9982.2

277.5

244.7

301.1

2350.5 2368.4

2870.3

3409.6 3769.1 4365.2 4814.3

1017.2 1281.0

1177.6

1493.1 1709.7 2004.0 2118.4

1173.2 1326.2

1554.7

1849.5 2016.6 2376.9 2604.0

5.7

15.3

9.4

13.6

328.2

14.9

410.5

19.1

426.7

18.7

5669.6 5347.7

6717.3

7818.1 8753.8 10049.2 11564.4

-1123.0 -356.8

-1105.3

-1052.3 -1243.4 -1283.9 -2009.0

21739.3 24405.9 30061.2 33512.7 35900.1 39206.8 43595.4

4462.7 4872.8

2.3

1.8

8500.0

0.0

9410.8 8910.8 8500.0 8500.0

0.0

0.0

0.0

0.0

1905.9 2295.8

2295.8

2295.8 2295.8 2295.8 2295.8

134.0

137.9

137.9

137.9

6504.9 7308.4

274.2

274.2

137.9

137.9

137.9

10933.8 11844.6 11344.6 10933.8 10933.8

274.3

274.4

274.4

274.4

274.4

Reserve and
Surplus
14960.6 16823.3 18853.1 21393.8 24281.1 27998.6 32387.2
Total Stock
Holder's
Equity
15234.8 17097.5 19127.4 21668.2 24555.6 28273.0 32661.6

Shares In
Issue

www.choiceindia.com

FY13

(Rs. Crore)

21739.7 24405.9 30061.2 33512.7 35900.1 39206.8 43595.4

0.0

0.0

0.0

0.0

0.0

0.0

0.0

UltraTech Cement
Cash Flow Statement (Rs. Crore)

Financial Ratios (%)

Particulars

Cash Flow from Operating Activities

FY14 FY15E FY16E

FY17E

FY18E

FY19E

Profit before tax

3825.5 2775.3 3128.1 4106.5

4560.5

5694.1

6724.3

Depreciation

945.4 1052.3 1274.3 1579.6

1724.2

1936.5

2110.0

Interest Expense 210.0 319.2 552.5 588.2

Operating Profit
Before WC
Changes
4980.9 4146.8 4954.9 6274.2

556.9

510.0

518.5

Particulars

Changes In WC
Gross cash
generated from
Operations

FY13

680.2 -766.2 748.5

-53.0

6841.6

8140.6

9352.8

191.2

40.5

725.0

5661.1 3380.6 5703.4 6221.2

7032.8

8181.1 10077.9

Direct Taxes Paid 1170.0 631.0 832.0 1251.8

Net Cash
Generated From
Operations
4491.1 2749.6 4871.4 4969.5

1334.5

1540.5

5698.3

6640.6

1820.8

8257.0

Cash Flow from Investing Activities

Capital Expenditure
(CAPEX)
(4042) (2338) (3325) (6362.0) (3988.8) (5263.2) (2123.0)
Investments
(840) (479) (4385) 1440.3 (286.8)
61.8 (5084.4)
Net Cash Used In
Investing Activities (4883) (2817) (7710) (4921.8) (4275.6) (5201.4) (7207.4)

Cash Flow from Financing Activities

Change in Debt
Change in Equity

836.1 803.4 3625.4

0.1

0.1

0.1

910.8

-500.0

-410.8

0.0

0.1

0.1

0.0

0.0

Dividends Paid

-289.0 -289.0 -266.2

-314.0

-338.7

-436.1

-514.9

Interest Paid

-210.0 -319.2 -552.5

-588.2

-556.9

-510.0

-518.5

0.0

0.0

0.0

0.0

Others
8.4
7.3
0.0
Net Cash used in
Financing Activities 345.5 202.6 2806.7
Net Increase in
Cash and Cash
Equivalents
Cash and cash
equivalents At the
beginning
Net Increase in
Cash and Cash
Equivalents
Cash and cash
equivalents At the
end

-46.4 134.4 -32.8

8.6

56.3

-1395.6 -1356.9 -1033.4

27.1

82.3

16.3

189.6 142.7 277.5

244.7

301.1

328.2

410.5

-46.4 134.4 -32.8

56.3

27.1

82.3

16.3

143.1 277.0 244.7

301.1

328.2

410.5

426.7

Cash balance as
per balance sheet 142.7 277.5 244.7

301.1

328.2

410.5

426.7

0.0

0.0

0.0

0.0

Difference

0.5

-0.5

www.choiceindia.com

0.0

FY13

Profitability Ratios
Return on Assets (ROA) 9.7%
Return on Equity (ROE) 17.4%
Return on Capital
Employed (ROCE)
17.2%
Dupont Analysis-ROE
Decomposition
PAT/PBT (Tax
Efficiency)
0.7
PBT/EBIT (Interest
Burden)
1.0
EBIT/Sales (OPM)
0.2
Sales/Total Assets
(Asset Turnover)
0.7
TA/NW (Financial
Leverage)
1.8
ROE
17.4
Liquidity Ratios
Current Ratio
Acid Test Ratio
Debt-Equity Ratio

(Rs. Crore)

FY14

FY15E FY16E FY17E FY18E FY19E

7.2%
12.5%

6.2%
12.0%

6.9%
13.2%

7.2%
13.1%

8.4%
14.7%

8.9%
15.0%

11.3%

11.1%

12.9%

13.1%

14.7%

15.5%

0.8

0.7

0.7

0.7

0.7

0.7

1.0
0.1

0.9
0.1

1.0
0.1

1.0
0.1

1.0
0.2

1.0
0.2

0.7

0.6

0.7

0.7

0.7

0.7

1.7
12.5

1.9
12.0

1.9
13.2

1.8
13.1

1.7
14.7

1.7
15.0

0.8
0.4
0.3

1.0
0.5
0.3

0.9
0.4
0.4

0.9
0.5
0.4

0.9
0.5
0.4

0.9
0.5
0.3

0.9
0.4
0.3

Efficiency Ratios
Assets Turnover Ratio
Working Capital
Turnover Ratio
F.A. Turnover Ratio
C.A. Turnover Ratio
Debtors Velocity

0.7

0.7

0.6

0.7

0.7

0.7

0.7

-20.6
1.2
4.3
18

-255.7
1.1
3.8
23

-27.4
1.2
4.0
18

-38.9
1.2
4.1
19

-34.9
1.2
4.1
20

-42.2
1.2
4.0
20

-25.6
1.3
4.1
19

Margin Ratios (%)

EBITDA Margin
Pre-Tax Margin
Net Profit Margin

23.2%
19.0%
13.2%

18.8%
13.7%
10.6%

19.5%
13.3%
9.7%

20.2%
14.0%
9.8%

20.1%
14.3%
10.1%

20.8%
15.4%
11.3%

21.8%
16.6%
12.1%

Growth Ratios YoY (%)

Net Sales
9.5%
0.5% 16.4%
EBITDA
10.2% -18.3% 20.6%
Adj.PAT
8.4% -19.3% 7.1%
Adj.EPS
8.4% -19.3% 6.9%

24.0%
28.1%
24.3%
24.3%

9.2%
8.9%
13.0%
13.0%

15.5%
19.6%
28.8%
28.8%

10.0%
15.3%
18.1%
18.1%

43
19

43
20

43
20

43
19

Working Ratios (Days)

Inventory
Debtors
Other Ratios (%)
Other Income/PBT
FCF Margin
Capex/Sales
Enterprise Value
Net Working Capital
Excluding Cash

43
18

43
23

44
18

8.0%
2.0%
20.0%

11.9%
1.0%
11.5%

11.2%
6.3%
14.1%

9.1%
9.1%
8.0%
7.3%
-5.3%
4.9%
3.2% 14.7%
21.7% 12.5% 14.3% 5.2%
106521. 105994. 105501. 105485.
52763.2 55148.3 79324.9
7
6
5
3
-1123.0 -356.8 -1105.3 -1052.3 -1243.4 -1283.9 -2009.0

Per Share (Rs.)

Adj.EPS
CEPS
DPS
BVPS
Cash Per Share

96.9
131.4
9.0
556.0
5.2

78.3
116.7
9.0
624.0
10.1

83.7
130.1
9.7
697.1
8.9

104.0
161.6
11.4
789.7
11.0

117.6
180.4
12.3
894.9
12.0

Valuation Parameters
P/E
P/CEPS
P/BV
EV/EBITDA
EV/SALES

18.2
13.5
3.2
11.3
2.6

23.6
15.8
3.0
14.4
2.7

31.0
19.9
3.7
17.2
3.4

34.1
22.0
4.5
18.1
3.6

30.2
19.7
4.0
16.5
3.3

23.5
16.0
3.4
13.7
2.9

19.9
13.9
3.0
11.9
2.6

12 Months Average
Share Price

1768

1845

2590

3550

3550

3550

3550

151.4 178.7
221.9 255.6
15.9
18.8
1030.4 1190.3
15.0
15.6

UltraTech Cement
Contact Us
Satish Kumar Sharma
Research Associate
satish.kumar@choiceindia.com

customercare@choiceindia.com

www.choiceindia.com

Disclaimer
This is solely for information of clients of Choice Broking and does not construe to be an investment advice. It is also not intended as an offer or solicitation for the
purchase and sale of any financial instruments. Any action taken by you on the basis of the information contained herein is your responsibility alone and Choice Broking
its subsidiaries or its employees or associates will not be liable in any manner for the consequences of such action taken by you. We have exercised due diligence in
checking the correctness and authenticity of the information contained in this recommendation, but Choice Broking or any of its subsidiaries or associates or employees
shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this
recommendation or any action taken on basis of this information. This report is based on the fundamental analysis with a view to forecast future price. 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. Choice Broking has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Choice
Broking makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the
report are based upon publicly available information at the time of publication and are subject to change without notice. The information and any disclosures provided
herein are in summary form and have been prepared for informational purposes. The recommendations and suggested price levels are intended purely for stock market
investment purposes. The recommendations are valid for the day of the report and will remain valid till the target period. The information and any disclosures provided
herein may be considered confidential. Any use, distribution, modification, copying, forwarding or disclosure by any person is strictly prohibited. The information and
any disclosures provided herein do not constitute a solicitation or offer to purchase or sell any security or other financial product or instrument. The current
performance may be unaudited. Past performance does not guarantee future returns. There can be no assurance that investments will achieve any targeted rates of
return, and there is no guarantee against the loss of your entire investment.
POTENTIAL CONFLICT OF INTEREST DISCLOSURE (as on date of report) Disclosure of interest statement Analyst interest of the stock /Instrument(s): - No. Firm
interest of the stock / Instrument (s): - No.

www.choiceindia.com