About the Company

UltraTech Cement Ltd. is the largest manufacturer of grey cement, Ready Mix Concrete (RMC), and white cement in India. It is also one of the crown jewels of the Aditya Birla Group, one of India’s leading Fortune 500 companies.

The company has a consolidated capacity of 117.35 Million (including Bara) Tonnes Per Annum (MTPA) of grey cement. UltraTech Cement has 23 integrated plants, 1 clinkerisation plant, 27 grinding units, and 7 bulk terminals post the Century merger. Its operations span across India, UAE, Bahrain, Bangladesh, and Sri Lanka. UltraTech Cement is also India’s largest exporter of cement reaching out to meet the demand 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 the specific needs of discerning customers.

Q3FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 12092 10143 19.22% 10165 18.96% 29927 30784 -2.78%
PBT 2303 934 146.57% 1778 29.53% 5253 3775 39.15%
PAT 1550 643 141.06% 1209 28.21% 3565 2549 39.86%

 

Consolidated Financials (In Crs)
  Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 12522 10608 18.04% 10522 19.01% 30994 32019 -3.20%
PBT 2331 997 133.80% 1462* 59.44% 4967** 3723 33.41%
PAT 1585 711 122.93% 896 76.90% 3274 2515 30.18%

*Contains exceptional item loss of Rs 336 Cr

**Contains exceptional item loss of Rs 493 Cr

Detailed Results

  1. The company had a very good quarter with consolidated revenues rising 18% YoY and PBT & PAT rising 134% YoY and 123% YoY respectively.
  2. Sales volumes grew 14% YoY in Q23 while operating EBITDA/ton increased 30% YoY to Rs 1330/ton.
  3. Operating margins improved 5% YoY to 26%.
  4. Capacity utilization in Q3 was at 75% in Century. Power consumption was reduced by 7% and production cost was reduced by 12% YoY. 72% brand transition was completed.
  5. In UltraTech Nathdwara, the plant is working at 45-75% capacity utilization. Production costs reduced by 15% YoY while EBITDA/ton was consistent at > Rs 1500/ton.
  6. The company reduced Rs 2696 Cr of net debt in Q3.
  7. Capacity utilization was at near 80% for the company. Selling price was down 1% QoQ. Production costs were down 1% QoQ.
  8. The company increased rural penetration by 3.5% YoY.
  9. Consolidated volume growth was at 14% YoY in Q3 and it fell by 4% YoY in 9MFY21.
  10. Fixed costs were brought down by 4% YoY.
  11. Changes in operating costs in Q3 is as follows:
    1. Logistics: Up 5% YoY to Rs 1178/ton. Accounts for 33% of the total operating costs.
    2. Energy: Down 3% YoY to Rs 952/ton. Accounts for 27% of total operating costs.
    3. Raw Materials: Flat YoY at Rs 501/ton. Accounts for 14% of total operating costs.
    4. Overall variable costs increased by 1% YoY in Q3.
  12. Diesel Price higher by ~10% YoY which led to logistics costs rising 5% YoY.
  13. Energy cost reduction of 3% YoY mainly due to an increase in green power from 11% last year to 13% currently and reduced power consumption by 2%.
  14. Absolute EBITDA grew 60% YoY. Consolidated EBITDA margins improved 7% YoY to 28% in Q3FY21.
  15. Net debt to EBITDA was at 0.73 times and net debt to equity was at 0.19 times.

Investor Conference Call Highlights

  1. Capacity utilization was 85% in December.
  2. Rebranding of Century should be done be Q2FY22 at the latest.
  3. Net debt stands at Rs 7973 Cr while current gross debt is at Rs 21000 Cr.
  4. ROE without goodwill has reached 14.1% and is expected to rise above 15% with new projects coming in.
  5. RMC is gaining good momentum for Ultratech. RMC generates incremental margins over cement and is also a high ROCE opportunity for Ultratech.
  6. Net sales of white cement segment are up 15% in Q3. This was driven by good volume performance and a strong price/mix with growth broad-based across categories and regions.
  7. White Cement grew about 13% while putty grew 18% in Q3.
  8. The company introduced new variants of Fragrance Putty which resulted in incremental growth in Putty segment.
  9. The management is not concerned about the entry of the parent Birla Group in the paints segment and is focussed on the cement sector only.
  10. The company is indeed looking to raise debt to refinance some of its existing debt at lower rates and take advantage of an opportunity for interest arbitrage.
  11. The Waste Heat Recovery System project is in full swing and is expected to get over by 3-4 months from its intended date.
  12. Pet coke prices are indeed at the high end currently and are not expected to rise much further.
  13. North & East zone have both grown more than 20% for the industry.
  14. The capacity utilization in South zone was in 70s while for the rest of India it was in the 80s.
  15. The management feels that demand will continue to outstrip incremental supply for the next 3-4 years for the cement industry.
  16. RMC sales were at Rs 620 Cr & white cement sales were at Rs 538 Cr in Q3.
  17. The company has to do minimal capex on distribution network as the transportation is entirely outsourced and acquiring dealers is easy for the company given its brand.
  18. 64% of sales were from trade channel.
  19. The company is seeing non-trade segment coming back well with the rise in urban real estate.
  20. The increase in pet coke prices will be reflected marginally in the next 2 quarters.
  21. The lead distance currently is close to 440 km. This has gone up mainly because the East zone was working at 100% capacity and the company had to source from other zones to service additional demand in the East zone.
  22. The company has no plans to hive off the white cement business at this point.
  23. The growth in RMC is directly linked to the rise in urban demand.
  24. White cement volumes sold in Q3 were at 3.9 lac tons.
  25. The management is insistent that the company will not be taking part in the paints business as the target customer set for the cement business and paints business are different. The distributor for Ultratech may start selling paints from Grasim but this will not involve Ultratech in any way.
  26. The total power generating capacity of Ultratech is 1100-1200 MW.

Analyst’s View

Ultratech Cement is the biggest cement maker in India. The company has done well to acquire aging cement makers in India and integrating them and adding on to the company’s ever-growing market presence and reach in the country. Ultratech has had a phenomenal quarter with sales growth of 19% and profit growth exceeding 100% YoY. The company is doing well to focus on cash conservation and cost reduction while maintaining its steady pace of debt repayment. It has also been restarting all the projects postponed by COVID and expects the Century brand transition to be completed in the next 2 quarters. It remains to be seen how long will uptick for infra and urban real estate will last and whether there is something in store for the infra and real estate sector in the upcoming Union Budget. Nonetheless, given the company’s leadership position in the industry, its wide distribution network across India, and its strong brand image, Ultratech Cement remains a pivotal cement sector stock for all Indian investors.

 


Q2FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 10165 9446 7.61% 7670 32.53% 17835 20640 -13.59%
PBT 1778 951 86.96% 1172 51.71% 2950 2841 3.84%
PAT 1209 639 89.20% 806 50.00% 2014 1906 5.67%

 

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 10489 9762 7.45% 7913 32.55% 18402 21302 -13.61%
PBT 1465* 890** 64.61% 1157 26.62% 2622*** 2783 -5.79%
PAT 899 579 55.27% 796 12.94% 1695 1860 -8.87%

*Contains exceptional item loss of Rs 336 Cr

**Contains exceptional item loss of Rs 157 Cr

***Contains exceptional item loss of Rs 493 Cr

Detailed Results

  1. The company had a decent quarter with consolidated revenues rising 7.5% YoY and PBT & PAT rising 65% YoY and 55% YoY respectively.
  2. Effective volumes grew 20% YoY in Q2 while operating EBITDA/ton increased 30% YoY to Rs 1387/ton.
  3. Operating margins improved 6% YoY to 27%.
  4. Capacity utilization in Q2 was at 68% in Century. Increased pet-coke usage to 74% vs 73% in the last quarter. Variable Costs reduced by 12% YoY.
  5. In UltraTech Nathdwara, the plant is working at 60% capacity utilization. Production costs reduced by 17% YoY while EBITDA/ton was consistent at > Rs 1500/ton.
  6. The company reduced Rs 2519 Cr of net debt to Rs 12132 Cr as of 30th Sep 2020.
  7. Consolidated volume growth was at 19% YoY in Q2 and it fell by 3% YoY in H1.
  8. The penetration in rural markets has also increased by 5% YoY. Blended cement sales increased by 3% YoY and now account for 71% of sales.
  9. Fixed costs were brought down by 14% YoY.
  10. Changes in operating costs in Q1 is as follows:
    1. Logistics: Up 1% YoY to Rs 1140/ton. Accounts for 33% of the total operating costs.
    2. Energy: Down 9% YoY to Rs 937/ton. Accounts for 27% of total operating costs.
    3. Raw Materials: Up 3% YoY to Rs 505/ton. Accounts for 15% of total operating costs.
    4. Overall variable costs reduced by 6% YoY in Q2.
  11. Diesel Price higher by ~14% YoY which led to logistics costs rising 1% YoY.
  12. Energy cost reduction of 9% YoY mainly due to an increase in green power from 9% last to 13% currently.
  13. Absolute EBITDA grew 35% YoY. Consolidated EBITDA margins improved 6% YoY to 28% in Q2FY21.
  14. Net debt to EBITDA was at 1.11 times and net debt to equity was at 0.27 times.

Investor Conference Call Highlights

  1. Over 50% of the rural districts have shown growth over their past few performances. Migrant Labour is coming back to cities.
  2. Tier 1 towns are seeing opening up of real estate markets.
  3. Housing demand is definitely showing green shoots with cheap housing loans driving the demand.
  4. Eastern and Central markets are running at near full capacity with solid demand.
  5. Due to pet coke prices rising to $100, most of the cement industry is switching to alternate high calorific value coal.
  6. Century Cement has been fully integrated. The company is now looking to invest in 20 megawatts of WHRS at Maihar and Manikgarh, 2 of the units of Century, which will result in further cost reduction and improvement in EBITDA/ton. These projects are scheduled to get commissioned by March ’22.
  7. Most of the company’s capex plans, in West Bengal, Bihar, and the greenfield Cuttack plant, have gotten delayed due to COVID-19. These are expected to be completed in FY22.
  8. The management expects the company to reach debt to EBITDA of 1 time by the end of FY21.
  9. Despite industry decline, the company has managed to increase its sales volumes mainly due to better internal coordination and the ability to service all orders that came in for them.
  10. The management expects the company to maintain a higher growth pace than the industry going forward.
  11. There was a reduction of 14% in overhead costs in H1. Around 4% of this is expected to go away as it represented ad spending which will increase as compared to Q1 when all marketing activity was suspended.
  12. The company is gaining market share in white cement. Total revenues from RMC were about Rs 434 Cr. White cement was around the same figure. The management has stated that it is difficult to gauge market share in RMC due to widespread market fragmentation.
  13. The company will not be doing higher dividend pay-out as the management expects the cement industry to grow fast and the company will require additional cash to be able to outpace industry growth.
  14. The company I seeing improvement in Gujarat demand after a very long time.
  15. The company has already started using international coal as a substitute for expensive pet coke.
  16. The company is not reducing the credit period but it is also not allowing any extra slack in it.
  17. The management expects to maintain negative working capital in H2 as well.
  18. The management is confident that it will not see any shortage of clinker in the East India units and can even resort to transporting volumes from South units to cover additional demand if the need arises.
  19. Capacity utilization had risen to 75% in the month of September.
  20. White cement volume in Q2 was at 330,000 tonnes.
  21. Capex spending in H1 was at Rs 450 Cr. The total capex for Fy21 is expected to be at Rs 1200-1300 Cr. The reduction from the targeted Rs 1500 Cr is mainly due to labour shortage at most project sites.
  22. The company will start work on the 3.5 million tonne Pali unit next year. this unit is expected to be commissioned by Oct-Dec ’22.
  23. The rural market has helped pick up much of the slack from the decline in urban markets for the company.
  24. The management expects volume growth for the industry to be positive despite the massive decline in Q1.
  25. The company is expected to have capacity utilization of around 80-85% in October.
  26. The West Zone has been the lowest growth market YoY for the company. The company has managed to see some marginal growth in the South zone despite industry decline in the region.
  27. 71% of volumes for the company come from retail. Around 35-40% of these volumes come from rural markets.

Analyst’s View

Ultratech Cement is the biggest cement maker in India. The company has done well to acquire aging cement makers in India and integrating them and adding on to the company’s ever-growing market presence and reach in the country. Despite a fall in volumes in Q1, the company was able to bounce back quickly and achieve volume growth in Q2 despite industry decline. The company is doing well to focus on cash conservation and cost reduction after the disruption caused by COVID-19 while maintaining its pace of debt repayment. It remains to be seen how long will it take for demand to normalize for the industry and when will demand come back to the institutional side and urban areas where demand has fallen the most. Nonetheless, given the company’s leadership position in the industry, its wide distribution network across India, and its strong brand image, Ultratech Cement remains a pivotal cement sector stock for all Indian investors


 

Q1FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 7670 11194 -31.48% 10583 -27.53%
PBT 1172** 1890 -37.99% 1445* -18.89%
PAT 806 1267 -36.39% 2906 -72.26%

 

Consolidated Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 7913 11554 -31.51% 10943 -27.69%
PBT 1157** 1893 -38.88% 1462^ -20.86%
PAT 796 1281 -37.86% 3239 -75.42%

*Contains deferred tax credit of Rs 1708 Cr

^Contains deferred tax credit of Rs 2024 Cr

**Contains an exceptional item of loss of Rs 157 Cr

 


Detailed Results

    1. The company had a dismal quarter with consolidated revenues declining 32% YoY and PBT declining 39% YoY.
    2. Effective volumes declined 22% YoY in Q1 while EBITDA/ton increased 12% YoY to Rs 1651/ton.
    3. The company reduced Rs 2209 Cr of net debt to Rs 14651 Cr as of 30th June 2020.
    4. Working capital turned negative with a change of Rs 789 Cr QoQ.
    5. Century Cement had utilization of >70% in May & June.
    6. Increased pet-coke usage to 73% vs 69% in the last quarter. Costs reduced by Rs 105/ton vs Q4FY20.
    7. Century Cement achieved EBITDA/ton of > Rs 900 in Q1.
    8. Ultratech Nathdwara con-core assets disposal to be completed by August 2020 and proceeds to be used to reduce company debt.
    9. Operating margins improved 1% YoY to 28% in Q1FY21.
    10. Net debt to EBITDA reduced to 1.44 times.
    11. Retail volume share has improved 13% YoY. The penetration in rural markets has also increased by 13% YoY. Blended cement sales increased by 11% YoY and now account for 78% of sales.
    12. Fixed costs were brought down by 21% YoY.
    13. Changes in operating costs in Q1 is as follows:
      1. Logistics: Declined 5% YoY to Rs 1116/ton. Accounts for 33% of the total operating costs.
      2. Energy: Declined 11% YoY to Rs 913/ton. Accounts for 27% of total operating costs.
      3. Raw Materials: Rose 2% YoY to Rs 477/ton. Accounts for 14% of total operating costs.
    14. Overall variable costs reduced by 9% YoY in Q1.
    15. EBITDA margins improved 4% YoY to 31% in Q1FY21.

Investor Conference Call Highlights

  1. Cement prices remained resilient with average prices increasing about 7% over Q4FY20.
  2. Work on 1.2 million tons in brownfield expansion in Bihar and West Bengal is going on for the company.
  3. The company expects to commission a 2.3 million-ton Dalla Super clinker plant in Uttar Pradesh in the next fiscal year.
  4. Total capex for FY21 is expected to not exceed Rs 1500 Cr. The bulk of it is towards return-based capex projects which include the 66-megawatt WHRS projects spread across 7 plant locations.
  5. Among the non-core assets of the company are a unit in Dubai and a loan outstanding to a company called 3B Fibreglass in Europe. The company is still looking for buyers for these assets.
  6. The management expects a normal monsoon slowdown to take place in the industry. Utilization levels at the same time last year were at 60%.
  7. The management has stated that pricing should see corrections of 4-5% due to monsoons.
  8. The bulk of sales is occurring in out of urban areas and individual home builder demand is the major driver for demand currently.
  9. The company expects big labour come back only after Diwali when the harvest season is over.
  10. Urban real estate demand is around 30-40 million tons but this demand has suffered greatly due to the labour migration and lack of workers.
  11. The company has been able to grow 30-40% YoY in MP mainly because of the low base and dealer network addition form the acquisitions of JP and Century.
  12. The company will move ahead with a plan to permanently reduce overheads by a minimum of 10% going forward. Overheads for full-year is around Rs 5000 Cr in FY20.
  13. The contribution from green power is expected to go up to 22-23% for the current 14% due to investment in WHRS and solar.
  14. The recently concluded transaction for Ultratech which had an EV of $120 million should net the company around Rs 700 Cr. after taxes.
  15. The modernization capex requirement is around Rs 750-800 Cr.
  16. The average capacity utilization in Q1 was at 46% with only 60+ operating days in the quarter.
  17. The exceptional item of Rs 157 Cr in Q1 was in regards to an incentive of 75% from Rajasthan Govt for expansion in Aditya Cement line 3. This incentive was exhausted in 2012 but the state govt intervened in 2019 and stated that the incentive had to be 50% and the rest needed to be paid back to the govt. the company challenged this decision in the High Court and Supreme Court but lost in both cases and had to make the required pay-out.
  18. The management maintains that at each plant after the acquisition, its goal is to be able to provide the same quality products from the new plants as from its existing plants.
  19. RMC sales were at Rs 148 Cr in Q1 while White Cement sales were at Rs 250 Cr.
  20. The management expects industry volumes to have declined by 33-35% in Q1.
  21. The company is also expecting good demand in the East from institutional infra spending which happens typically before elections in the region.
  22. Despite demand coming back slowly, the management remains cautious of the near future as there are many uncertainties that may adversely affect operations.
  23. The company will start work on North Pali as it will lose the license to the mines in December 2022. Thus the company is expected to commission a facility there by October 2022.

Analyst’s View

Ultratech Cement is the biggest cement maker in India. The company has done well to acquire aging cement makers in India and integrating them and adding on to the company’s ever-growing market presence and reach in the country. Despite fall in volumes in Q1, the company was able to keep efficiency high and keep increasing EBITDA/ton and EBITDA margins. The company is doing well to focus on cash conservation and cost reduction after the disruption caused by COVID-19 while looking to sell off its non-core assets to reduce debt. It remains to be seen how long will it take for demand to normalize for the industry and when will demand come back to the institutional side and urban areas where demand has fallen the most. Nonetheless, given the company’s leadership position in the industry, its wide distribution network across India, and its strong brand image, Ultratech Cement remains a pivotal cement sector stock for all Indian investors.


 

 

Q4 FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 10584 12128 -12.73% 10146 4.32% 41376 40495 2.18%
PBT 1445* 1532 -5.68% 934 54.71% 5220** 3492 49.48%
PAT 2906 1057 174.93% 643 351.94% 5455 2412 126.16%

 

Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 10944 12501 -12.46% 10522 4.01% 42773 42072 1.67%
PBT 1462^ 1526 -4.19% 997 46.64% 5242^^ 3468 51.15%
PAT 3239 1066 203.85% 711 355.56% 5810 2400 142.08%

*Contains deferred tax credit of Rs 1708 Cr

**Contains deferred tax credit of Rs 1154 Cr

^Contains deferred tax credit of Rs 2024 Cr

^^Contains deferred tax credit of Rs 1488 Cr


Detailed Results

    1. The company had a dismal quarter with consolidated revenues declining 12% YoY and PBT declining 4% YoY.
    2. Capacity utilization in Century Cement was close to 80% despite disruption from COVID-19. The pet coke usage at the plant was at 69% and the company reduced power costs in this plant by 8% QoQ. The company also booked one-time integration costs of Rs 40 Cr in Q4.
    3. The company saw an increase in realization from Century of Rs 160/ton. The brand transition is completed for 65% production and the company expects 84% production to be transitioned to Ultratech brand by Q3FY21.
    4. In Ultratech Nathdwara, the average EBITDA generated in Fy20 was greater than Rs 1250/ton. The company also achieved a 14% cost reduction in FY20 and generated a cash profit of greater than Rs 300 Cr in FY20 from this facility.
    5. The company has incremental free reserves of Rs 2112 Cr in consolidated terms.
    6. Overall average EBITDA has been at its highest at Rs 1154/ton and normalized PAT growth without the tax credit was at 56% YoY for FY20.
    7. The total consolidated capacity for the company is at 114.8 tons per year.
    8. The company achieved its highest ever consolidated EBITDA for the year at Rs 9930 Cr in FY20. Overall operating cash flow for FY20 was in excess of Rs 5700 Cr.
    9. The consolidated debt was reduced by Rs 1765 Cr in Q4 which brings the debt reduction for FY20 to Rs 5251 Cr. India operations net debt/EBITDA as of 31st March 2020 stands at 1.55 times.
    10. The Capex target for FY21 is at Rs 1000 Cr.
    11. The company reduced Rs 404 Cr in working capital in Q4.
    12. Sales volumes for FY20 were down 4% YoY while volumes for Q4 were down 16% YoY. The fall was mainly due to the disruption caused by COVID-19 in March.
    13. In Q4, blended sales volumes grew 2% YoY at 68% while premium products grew 19% YoY.
    14. The company also added 230 new stores in FY20 bringing the total up to 2145.
    15. The company also achieved a 6% reduction in variable cost in Q4.
    16. Changes in operating costs in Q4 is as follows:
      1. Logistics: Declined 3% YoY to Rs 1149/ton. Accounts for 33% of the total operating costs.
      2. Energy: Declined 13% YoY to Rs 914/ton. Accounts for 26% of total operating costs.
      3. Raw Materials: Rose 5% YoY to Rs 497/ton. Accounts for 14% of total operating costs.
    17. Green power consumption rose to 11.6% vs 7.9% last year.
    18. The increase in RM costs is mainly due to a rise in fly ash costs.
    19. Consolidated and India EBITDA margins rose 5% YoY to 24% in FY20.
    20. ROE for FY20 was at 10% vs 7% a year ago.
    21. The board recommended a final dividend of Rs 13 per share for FY20.

Investor Conference Call Highlights

  1. The management believes that the greater part of demand currently is coming from retail and rural markets where pending work is to be completed before monsoons.
  2. The management expects slowdown from urban construction activities for at least 2-3 months mainly due to the labour exodus from these places.
  3. The management has clarified that all of the treasury surpluses of the company have been deployed in AAA liquid debt schemes and the company has zero exposure to all of the recent debt debacles like Franklin Templeton, etc.
  4. The main focus for the company in FY21 is going to be conserving cash and running a negative working capital cycle is key to this.
  5. The company has slowed down all expansion and Capex plans for FY21 and is limiting Capex for the year to Rs 1000 Cr most of which is expected to be maintenance CAPEX.
  6. The company is also targeting a fixed cost reduction target of 10% in FY21.
  7. The volume decline is mainly due to a decline in volumes from Century.
  8. Excluding one-time costs, the EBITDA per ton for Century is at Rs 575. This is expected to go up to anywhere between Rs 800-900.
  9. The management is aiming to bring net debt to EBITDA to 1 time going forward.
  10. The capacity utilization for the company was 74% and thus the management feels that the company has enough headroom to meet any additional demand that comes back once normal business activities resume.
  11. The distribution mix is at 70% road, 27% rail, and 3% ocean. The management believes that the biggest advantage of Ultratech in distribution is its dedicated fleet of transporters which account for 53% of road volumes.
  12. The management has stated that in terms of geography, West India has seen the biggest fall since it has been hit the hardest by COVID-19. In terms of capacity utilization, Central India has the lowest out of all zones.
  13. The Century products have been 100% branded to Ultratech in the West and South markets now.
  14. The main reason for the estimation of the rise in EBITDA/ton in Century is due to the rebranding and cost reduction from WHRS implementation in all plants for Century.
  15. The Q4 revenue for RMC was at Rs 555 Cr while white cement was at Rs 421 Cr. The sales volumes for white cement and putty was at 3.2 million tons.
  16. The expansion in Bara for 2 million capacity has been pushed back a quarter to Q2 due to COVID-19.
  17. The lead distance for Q4 was at 440 km.
  18. The plants in the East zone have started operating at 90% capacity.
  19. The management has clarified that receivables are at the lowest while inventory is not expected to build-up as the management aims to keep a negative working capital cycle going on.
  20. The utilization at Nathdwara was at 57% in Q4. The operating EBITDA generated from this plant is Rs 1600/ton in Q4.
  21. The management has refrained from providing any guidance on net debt reduction for FY21 due to the uncertainty involved with COVID-19 and the economic disruption.
  22. The management believes that volumes for the next 12-18 months will be driven by rural demand coming up on account of good agricultural seasons and from the government push for infrastructure development.
  23. The management has stated that the breakeven utilization for the company’s plants is between 30-40% depending on location and capacity.
  24. The only demand-led shutdown for the company is one grinding unit near New Delhi due to the capital being in a red zone.
  25. The management has stated that fly ash availability is not an issue as power plants across the country are operating still. It is the transportation of this fly ash which could prove to be an issue.
  26. Road freight for the company has remained flat for FY20.
  27. The company is operating at 35-40% of total manpower right now. This opens up avenues for manpower reduction as a major cost reduction source going forward for the company.
  28. The management has stated that it will take at least 2-3 years for the company to run down its MAT and move to the new tax regime.
  29. The pending Capex for Bara is only Rs 120 Cr which will be part of FY21 Capex. The maintenance Capex for FY21 is estimated to be around Rs 600-700 Cr.
  30. The total rural demand is estimated to be around 35% of the total industry demand.

Analyst’s View

Ultratech Cement is the biggest cement maker in India. The company has done well to acquire aging cement makers in India and integrating them and adding on to the company’s ever-growing market presence and reach in the country. Despite fall in volumes in Q4, the company was able to keep efficiency high and achieve its highest ever EBITDA/ton figure. The company is doing well to focus on cash conservation and cost reduction after the disruption caused by COVID-19. It remains to be seen how long will it take for demand to normalize for the industry and when will demand come back in the principal market of West India where demand has fallen the most. Nonetheless, given the company’s leadership position in the industry, its wide distribution network across India, and its strong brand image, Ultratech Cement remains a pivotal cement sector stock for all Indian investors.


 

Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 10145.76 10070.32 0.75% 9452.02 7.34% 30791.53 28369.09 8.54%
PBT 933.81 627.33 48.85% 951.13 -1.82% 3774.93 2074.14 82.00%
PAT 643.15 432.7 48.64% 639.19 0.62% 2549.22 1355.78 88.03%

 

Consolidated Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 10521.95 10556.46 -0.33% 9768 7.72% 31829.05 29572.66 7.63%
PBT 997.43 590.59 68.89% 889.84 12.09% 3780.33 1942.16 94.65%
PAT 711.25 374.07 90.14% 578.55 22.94% 2571.07 1314.91 95.53%


Detailed Results

    1. The company had a stellar quarter with consolidated revenues remaining stable but profits growing 90% YoY. This is mainly attributed to the savings in power and fuel costs which was down 17.7% YoY and netted a savings of Rs 441 Cr for the company. Freight expenses were also down YoY with a net savings of almost Rs 209 Cr in the quarter.
    2. 9M figures were also very good with revenues rising only 7.6% YoY but profits growing 95% YoY. Similarly, this robust profit growth can be attributed to the various cost savings that the company has achieved so far in the year.
    3. The volumes growth for the cement industry is mainly led by demand in Eastern India in states like West Bengal, Bihar, Jharkhand, Odisha and Chhattisgarh.
    4. In the company’s recent acquisition Century Textiles, capacity utilization was at 79% in Q3. Quality upgradation has been completed in 3 plants so far. The company expects to reduce plant operation costs in this unit by Rs 150 per ton by Q2FY21. The company expects 84% of production to be transitioned to Ultratech brand by Q2FY21.
    5. The Nathdwara plant has been operating at 60% capacity utilization and has achieved savings of Rs 425 per ton since acquisition. It is now operating at an EBITDA/ton of > Rs 1500 and has generated cash flows of Rs 215 Cr in 9MFY20.
    6. The company has now achieved a 12.7% reduction in consumption of fossil fuels in Q3 vs 10.4% in Q2 by increasing power consumption from alternative sources like wind and solar. The current green energy capacity of the company is 200 MW and the company aims to increase it to 570 MW by the end of FY21.
    7. Alternative fuel usage for the company is at 3.5% currently.
    8. The company has been able to achieve an operating margin of 21% in Q3FY20 vs 16% in Q3FY19. It has also achieved a 31% YoY growth in normalized EBITDA/ton to Rs 2009 in Q3FY20. Overall operating EBITDA/ton was at Rs 1004 in Q3FY20 vs Rs 741 in Q3FY19.
    9. Rural sales for the company have grown 9% YoY for the company. Premium product volumes growth has been stellar at >40% YoY.
    10. The company has also reduced the net consolidated debt by Rs 1994 Cr in Q3. It has also reduced working capital by Rs 834 Cr in the quarter. Thus consolidated net debt/EBITDA has improved to 1.87 times from 2.83 times a year ago.
    11. The company has seen logistics costs fall 5% YoY while energy cost has fallen 15% YoY. However, the raw material cost has risen 2% YoY due to higher fly-ash prices and increased share of blended cement volumes.

Investor Conference Call Highlights

  1. The new infrastructure plan unveiled earlier by the government is expected to drive the cement for the next few years.
  2. The company has also settled contingent liabilities for the Sabka Vishwas Tax Amnesty Scheme and is going to pay up around Rs 133 Cr to settle and let go of the matter. This payment deadline is set for 31st March 2020.
  3. The company will spend Rs 30 Cr in integration costs for Century Cement.
  4. The company has also reduced the consumption of fossil fuels by an annualized number of 5 lac tons.
  5. The company has placed orders for grinding capacity expansion of 3.4 metric tons in the eastern markets. The company is also commissioning 3 plants in Cuttack (2 million ton), Dankuni and Pataliputra (0.7 million ton each) for composite cement. This commissioning is expected to be done by March ’21.
  6. The operating EBITDA per ton for Century is around Rs 267 excluding one-time costs. The company expects this figure to hit Rs 1000 by Q1FY21.
  7. The Century capacity is around 14.6 million tons out of which 12.2 will be used to make UltraTech cement. The rest 2.4 will be used to make the old brand which will be selling in the Chhattisgarh market only.
  8. The management has stated that unsold inventory in real estate is still high in major cities. Once the inventory level reduces, new projects will start again and demand for cement should go up.
  9. The management has also stated that projects launched under RERA should not face any delays in project execution and thus would be good for cement demand in overall.
  10. The management maintains that EBITDA per bag for premium products is slightly higher than Rs 10 and is expected to go higher as volumes for the segment rise and operating leverage kicks in.
  11. The rise in fly-ash costs is in most cases stemming from the shutdown of a power plant and thus the increase in costs is not necessarily seasonal. Thus to lock in these costs, the company is looking for long term tie-ups power plants.
  12. Total Capex commitment for the 3.4-million-ton expansion is around Rs 940 Cr.
  13. Overall volumes for the company have fallen 4% YoY mainly on the back of institutional and infrastructural volumes going down.
  14. The management expects the company to perform better than the industry.
  15. 68% of total sales are now driven by blended cement which is expected to be 71% by the end of next year.
  16. The company is maintaining its pricing position despite losing market share on wall putty for not providing discounts in small bags.
  17. The management expects that as capacity utilization improves in the near future, the company will start to see price improvements.
  18. Utilization in the south zone for the company is around 70%.
  19. The management has clarified that the company has not bid for Emami Cement at all despite media reports.
  20. The company is also looking to dispose of the non-core assets of Nathdwara and is looking into buyers from China and Europe.
  21. The management expects the capacity utilization rate for Century should rise to 85% in the next quarter.
  22. The management has stated that the company will be using the cheaper alternative among US coal and pet coke for its plant’s fuel.
  23. White cement volumes for the company were at 3.46 lac tons in Q3FY20 vs 3.7 lac tons last year. The revenues from this section was Rs 460 Cr vs Rs 500 Cr last year.
  24. The RMC revenues for Q3FY20 were Rs 500 Cr vs Rs 527 Cr last year.
  25. The company is targeting WHRS of up to 141 MW. This should cover the 11 out of 22 integrated plants of the company.
  26. The management has attributed the strong EBITDA/ton margins to the strong brand positioning and strategic location of the Nathdwara plant which has helped keep logistics costs low while addressing key markets of Rajasthan and Gujarat.
  27. The management expect the sustainable margin for the Nathdwara plant to be greater than Rs 1000 going forward.
  28. The average lead distance in Q3 and 9M this year was around 400 km.

Analyst’s View

Ultratech Cement is the biggest cement maker in India. The company has done well to acquire aging cement makers in India and integrating them and adding on to the company’s ever-growing market presence and reach in the country. It has also done well to also maintain good product quality and brand positioning which has helped the company maintain its strong market position. Moreover, with various cost savings initiatives in place like reducing fossil fuel consumption, logistics costs reduction, the company has been able to drastically improve its margins and profit-generating capability despite the slow industry conditions and declining industry volumes. Q3 was especially good for the company and further emphasized the effectiveness of the company’s cost savings by delivering exemplary profit growth of >90% YoY despite revenue growth of only 7% YoY and an overall volume decline of nearly 4% YoY. It remains to be seen how long it will take for the industry demand to rise particularly when will construction industry revives and spur the demand for cement. Nonetheless, given the company’s strong market positioning, its improving product portfolio, and its various cost optimization initiatives, Ultratech Cement remains a prime cement stock for any and every investor.

 

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