Event update: UltraTech Cement (Outperformer) - Century assets to strengthen Eastern & Central presence
Event
Ultratech Cement (UTCEM) has announced acquisition of 13.4mtpa of cement capacity (8.5mtpa clinker; 117MW thermal power) from Century textiles under the demerger scheme at an EV is ~Rs86.21bn (incl Rs30bn of debt) implying a valuation of US$96 on EV/t and 17.5x on FY18 EV/EBITDA basis. The acquisition would increase UTCEM’s domestic capacity to 105.9mtpa (100.2mtpa operational) from 86.8mtpa currently.
Details
- The Century textile asset capacities are spread across West (36%; in Eastern Maharashtra), East (33%; WB, Odisha) and Central (31%; MP). An additional 1.2mtpa would be acquired once statutory clearances are received without any additional consideration.
- UTCEM will invest Rs5bn over the next 3 years in order to improve plant efficiency & quality of operations. This includes Rs1.5bn towards land acquisition at plant in Chhattisgarh required for operationalizing limestone mines won under auction. If one has to include this capex, then the acquisition cost would be US$102 on EV/t basis.
- The acquired assets currently operate at ~75% utilization. Revenues/EBITDA for FY18 was at Rs43.06bn/Rs4.93bn (adj for one-offs). EBITDA/t for FY18 was ~Rs490/t (~Rs360/t in Q4FY18)
- Margin enhancement to be driven by re-branding (~Rs15/bag higher selling price) and operational synergies such as lower power consumption norms, inventory carrying costs, marketing costs, common overheads, etc. There is limited room for savings on positive operating leverage (already at 75% utilization) and drop in leads (most plants adjacent to UTCEMs existing plants). Overall, a gap of Rs100/t in cost between Ultratech and acquired plants will sustain (~Rs64/t royalty charge; Rs35-40/t due to higher costs of older plants).
· The acquired plants together have limestone reserves of ~439mn t, adequate to meet requirements for 37 years. However, there is little scope for capacity additions through brownfield due to inadequate limestone and land unavailability.
UltraTech Cement Limited is engaged in the business of cement and cement-related products. The Company manufactures a range of products that cater to construction needs from foundation to finish, including Ordinary Portland Cement (OPC), Portland Blast Furnace Slag Cement (PSC), Portland Pozzolana Cement (PPC), white cement and white cement-based products, ready mix concrete, including specialty concrete, building products, such as aerated autoclaved concrete (AAC) blocks and joining mortars and a host of others in retail formats. Its geographical segments include India and Rest of the World. The Company focuses on various areas, including alternative fuels, waste heat recovery systems, carbon dioxide emission reduction, waste management, water re-cycling and bio-diversity management. It has over 10 integrated cement units, approximately 10 grinding units, a white cement unit, a wall care putty, over five bulk terminals and over 100 ready mix concrete units.
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