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UltraTech: Building scale for growth
Apr 29, 2010

UltraTech Cement has announced its FY10 results. The company has reported a 10.4% YoY and 11.9% YoY growth in sales and net profits respectively. Here is our analysis of the results

Performance summary
  • Topline grows 2.6% YoY and 10.4% YoY during 4QFY10 and FY10 respectively. The growth was backed by strong demand for the commodity.
  • Costs grow at a slower pace in comparison to revenues. This led to 1.3% expansion in operating margins.
  • On the back of 15.7% YoY growth in operating profits, bottomline grows by 11.9% YoY.
  • The board of the company recommends a dividend of Rs 6 per share. Also approves acquisition of ETA Star Cement Company LLC, Dubai.


(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales    18,601   19,094 2.6%   63,831   70,497 10.4%
Expenditure    13,294   15,067 13.3%   46,790   50,786 8.5%
Operating profit (EBITDA)      5,308     4,026 -24.1%   17,041   19,711 15.7%
EBITDA margin 28.5% 21.1%   26.7% 28.0%  
Other income          310         258 -16.7%     1,058     1,227 15.9%
Interest          340         285 -16.3%     1,255     1,175 -6.4%
Depreciation          906         993 9.6%     3,230     3,881 20.1%
Profit before tax/(loss)      4,372     3,007 -31.2%   13,615   15,882 16.7%
Tax      1,277         721 -43.5%     3,844     4,949 28.7%
Profit after tax/(loss)      3,095     2,285 -26.1%     9,770   10,932 11.9%
Net margin 16.6% 12.0%   15.3% 15.5%  
No of shares (m)         124.5     124.5  
Diluted EPS (Rs)*                87.8  
P/E (times)                11.7  
*trailing twelve month earnings

What has driven performance in FY10?
  • UltraTech Cement reported 10.4% YoY growth in net sales for the full year ended March, 2010. The growth has come on account of double digit growth in volumes. For the full year, the company has reported 11% YoY growth in sales volumes. Its domestic dispatches grew by 12.7% YoY. Thus, it is clear that the growth has largely been driven by higher volumes. The realisations in domestic as well as export markets were lower in 4QFY10 as compared to 4QFY09. This has impacted overall profitability of the company. The company has been reporting double digit growth in volumes throughout the year. However, the company's growth in revenues in 3QFY10 and 4QFY10 stood in single digits. This is primarily on account of lower realisations. Hence, on the back of good performance in 1HFY10, the company managed to end the year reporting double digit growth.

  • The company has reported 15.7% YoY growth in operating profits. The company has put up a good show. However, the growth has largely come on account of higher profitability reported in 1HFY10. Performance in 2HFY10 has proven to be a drag on the overall profitability of the company. This is mainly because of declining cement prices. Otherwise, the company has been taking several measures to contain growth in operating costs. It has been able to lower its power and fuel costs for the full year (down by 17.1% YoY). Commissioning of captive power plants and benefit of lower coal prices derived in 1HFY10 resulted in slower growth in overall operational costs for the full year.

  • At the net level, growth in earnings stood at 11.9% YoY. Good show at the operating level, lower interest costs and higher other income supported the growth in botomline.

  • During the 4QFY10, the board of the company has approved the acquisition of ETA Star Cement Company LLC, Dubai together with its cement operations in United Arab Emirates (UAE), Bahrain and Bangladesh. ETA Star Cement's manufacturing facilities include a 2.3 m tonnes p.a. (MTPA) clinkerisation plant and 2.1 MTPA of cement grinding capacity in the UAE, 0.4 MTPA and 0.5 MTPA of cement grinding capacity in Bahrain and Bangladesh respectively. The acquisition will be carried out by wholly owned subsidiary of the company - UltraTech Cement Middle East Investments Ltd (UCMEL). UCMEL will acquire management control and equity stake at all the locations. The enterprise value of all these assets as reported by the company is Rs 17 bn.

  • UltraTech Cement has been exporting cement to Middle East countries. With this acquisition UltraTech Cement will get direct access to these markets and adjoining regions. It may lead to better operational efficiency as cement remains a regional play. Producing and dispatching within the same region is more feasible. In the recent past these regions have slowed down owing to the global economic slowdown. However, considering the construction projects lined up in these regions, there is scope to grow. The move is in line with the Aditya Birla group's plans to expand its presence in global markets across businesses.

  • The group has also planned to consolidate all its cement assets under a single entity- UltraTech Cement. The board of the company has approved the amalgamation of Samruddhi Cement Ltd. Upon completion of the scheme, UltraTech Cement is expected to emerge as the largest cement manufacturer domestically. The move would result in a single platform to explore opportunities in the cement industry and at the same time enjoy economies of scale.

What to expect?
The demand for the commodity is expected to grow at the rate of 10% backed by government's initiatives to boost rural, housing and infrastructure development. However, upcoming capacities have started exerting pressure on realisations. However, this scenario is a medium term concern. We are positive on the sector from a long perspective.

Going forward, those companies that are able to control costs better will have the competitive advantage. UltraTech has been taking steps in this direction. The benefits of which have been reflected in this year's performance. Apart from cost control measures, the company has also been looking out for growth options. One such step is acquisition of ETA Star Cement Company.

The company has performed almost in line with our estimates. At the current price of Rs 1,023, it is trading at an EV/tonne of over Rs 6,600 based on our FY12 estimates. On an asset based valuation method, the stock is trading over the upper end of our valuation band. Hence, we advise investors to practice caution.

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