MOSL: ULTRATECH CEMENT (Buy)-ANNUAL REPORT UPDATE-Profitability impacted by cost pressure-Increase in leverage on account of capacity expansion
UltraTech Cement | Annual Report UPDATE: Profitability impacted by cost pressure; Increase in leverage on account of capacity expansion
(UTCEM IN, Mkt Cap USD18.2b, CMP INR4590, TP INR5280, 15% Upside, Buy)
Our analysis of UTCEM’s FY19 annual report highlights healthy cement volume growth led by expansion and acquisitions of the company. However, margins suffered due to cost pressures. While operating cash flows remained healthy, net debt/EBITDA increased from 2.3 in FY18 to 2.9 in FY19.
Industry sees 12mt capacity addition in FY19; utilization improves 5pp
- According to UTCEM’s management, in FY19, India’s total cement capacity stood at 480mt; of this, ~12mt was added during the year. Demand in FY19 increased 13%, the highest growth since FY10.
- Demand growth from infrastructure was healthy driven by the government’s focus on roads, metro rail projects, airports renovation, irrigation projects, etc. While, there has been significant improvement in low-cost houses constructed under the Pradhan Mantri Awas Yozana (PMAY) in rural areas, the affordable housing segment in urban areas is also gaining momentum.
- As a result, the industry witnessed utilization improvement of 5pp over the previous year, reaching a utilization of 71%.
- The company expects further improvement in utilizations on likely sustained demand growth with incremental new supplies at a slower pace vis-à-vis the increment demand.
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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