2QFY2013 Result Update | Cement

October 23, 2012

UltraTech
Performance Highlights
Quarterly results (Standalone)
Y/E March (` cr) Net sales Operating profit OPM (%) Net profit 2QFY2013 4,700 1,035 21.9 550 1QFY2013 5,075 1,308 25.7 778 % Chg qoq (7.4) (20.8) (379) (29.3) 1QFY2012 3,910 652 16.4 279 % Chg yoy 20.2 58.7 551 97.2

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 55,382 494 0.6 2075/1057 11,233 10 18,710 5,691 ULTC.BO UTCEM@IN

`2,021 -

Source: Company, Angel Research

During 2QFY2013, UltraTech Cement (ULTC) posted a strong 97.2% yoy growth in its bottom-line, which was in-line with our estimate. The robust performance was on account of a substantial 20.2% yoy growth (up 1.9% sequentially) in blended realization. However, the company faced margin pressures due to the increase in raw material and freight costs. We remain Neutral on the stock. OPM up by 551bp yoy: During 2QFY2013, ULTCs net sales grew by 20.2% yoy to `4,700cr, largely on account of better realization. The companys realization rose 20.2% yoy and 1.9% qoq to `5,005/tonne. The improvement in realization led the OPM to rise by 551bp yoy to 21.9%. The companys operating cost per tonne too rose by 10.9% yoy and 7.4% qoq to `3,932/tonne. The raw material cost per tonne rose by 22.1% yoy and 9.1% qoq to `763. The freight cost per tonne rose by 24.2% yoy due to increase in diesel costs and hike in railway fare. The power and fuel (P&F) cost per tonne too rose by 12.5% on a yoy basis. The steep decline in INR vs USD partly negated the fall in global coal prices, resulting in higher power and fuel costs. Outlook and valuation: We expect ULTC to post a 14.6% and 16.6% CAGR in its top-line and bottom-line over FY2012-14, respectively. At the current levels, the stock is trading at an EV/tonne of US$178 on FY2014 capacity, which we believe is fair. We continue to remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 62.8 4.3 20.4 12.5

Abs. (%) Sensex UTCEM

3m 10.9 26.6

1yr 11.5

3yr 11.3

80.9 161.4

Key financials (Standalone)

Y/E March (` cr) Net sales % chg Net profit % chg FDEPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/Tonne (US $) EV/EBITDA (x)
Source: Company, Angel research

FY2011 13,210 87.4 1,404 28.4 51.2 20.5 39.4 5.2 18.4 16.4 4.3 245 20.9

FY2012 18,166 37.5 2,446 74.2 89.3 22.8 22.6 4.3 20.8 18.3 3.0 223 13.3

FY2013E 21,197 16.7 2,838 16.0 103.5 22.5 19.5 3.6 20.2 18.8 2.6 201 11.3

FY2014E 23,850 12.5 3,327 17.2 121.4 23.5 16.6 3.1 20.1 19.4 2.4 178 10.1

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

UltraTech Cement | 2QFY2013 Result Update

Exhibit 1: 2QFY2013 performance (Standalone)

Y/E March (` cr) Net Sales Other operating Income Total Operating Income Net raw-material costs (% of sales) Power & fuel (% of sales) Staff costs (% of sales) Freight & forwarding (% of sales) Other expenses (% of sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) PBT Provision for Taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

2QFY2013 4,700 28 4,727 652 13.9 1,074 22.9 239 5.1 929 19.8 798 17.0 3,692 1,035 21.9 60 232 41 783 783 233 29.8 550 11.7 20.1

1QFY2013 5,075 16 5,091 744 14.7 1,086 21.4 224 4.8 1,036 22.1 693 14.7 3,783 1,308 25.7 50 228 69 1,099 1,099 320 29.2 778 15.3 28.4

% Chg qoq (7.4) 73.0 (7.1) (12.4) (1.1) 7.1 (10.3) 15.2 (2.4) (20.8) (379) 20.5 1.9 (40.9) (28.7) (28.7) (27.2) (29.3) (29.3)

2QFY2012 3,910 71 3,981 667 17.1 955 24.4 206 4.4 748 15.9 753 16.0 3,328 652 16.4 67 223 33 395 395 116 29.4 279 7.1 10.2

% Chg yoy 20.2 (60.7) 18.8 (2.3) 12.5 16.3 24.2 6.0 10.9 58.7 551 (10.7) 4.4 24.9 98.3 100.8 97.2 97.2

1HFY2013 9,771 44 9,815 1,396 14.3 2,160 22.1 463 9.9 1,966 41.8 1,487 31.6 7,472 2,343 23.9 110 461 109 1,882 1,882 554 29.4 1,328 13.6 48.5

1HFY2012 8,259 81 8,340 1,176 14.2 1,996 24.2 389 8.3 1,706 36.3 1,220 26.0 6,487 1,853 22.2 137 446 83 1,353 1,353 391 28.9 962 11.6 35.1

% Chg 18.3 (45.9) 17.7 18.7 8.2 18.9 15.2 21.9 15.2 26.4 (20.0) 3.3 31.5 39.1 39.1 41.5 38.1

Exhibit 2: Financial performance

(` cr) 6,400 5,600 4,800 4,000 3,200 2,400 1,600 800 0 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 Net operating income Net Profit 1QFY13 2QFY13 OPM (RHS) 727 683 16 279 617 867 778 550 4,556 24 4,404 28 4,651 3,981 22 24 5,392 5,075 26 4,700 (%) 30 27 24 22 21 18 15 12

Source: Company, Angel Research

October 23, 2012

UltraTech Cement | 2QFY2013 Result Update

Exhibit 3: 2QFY2013 Actual vs Angel Estimates

(` cr) Net sales Operating profit Net profit
Source: Company, Angel Research

Actual 4,700 1,035 550

Estimates 4,650 1,022 558

Variation (%) 1.1 1.3 (1.4)

Performance highlights
Net sales up 20.2% yoy, aided by higher realization
During 2QFY2013, ULTCs net sales rose by 20.2% yoy on account of higher realization. During the quarter, the realization improved by 20.2% yoy to `5,005/tonne. The companys domestic volumes (including clinker and white cement) stood at 9.3mn tonne, up 1.6% yoy, in 2QFY2013. Even on a qoq basis the realization was higher by 1.9% as delayed monsoon resulted in prices remaining healthy in this seasonally weak quarter. Cement prices rose in the month of July before witnessing a decline in the month of August and September.

OPM increases despite steep increase in costs

Despite the increase in costs, the OPM rose by 551bp yoy to 21.9%. The companys operating cost per tonne too rose by 10.9% yoy and 7.4% qoq to `3,932/tonne. The raw material cost per tonne rose by 22.1% yoy and 9.1% qoq to `763. The freight costs per tonne rose by 24.2% yoy due to increase in diesel costs and hike in railway fare. The power and fuel costs per tonne too rose by 12.5% on a yoy basis. The steep decline in INR vs USD partly negated the fall in global coal prices, resulting in higher power and fuel costs.

Per tonne analysis

During 2QFY2013, ULTCs realization per tonne rose by 20.2% yoy to `5,005. The raw-material cost per tonne increased by 22.1% yoy. The power and fuel cost per tonne increased by 12.5% on a yoy basis. The freight cost/per tonne rose by 24.2% yoy. The companys operating profit/tonne increased by 73.2% yoy to `1,073 during the quarter.

Exhibit 4: Operational performance

Particulars (`) Realization/tonne Raw-material cost/tonne P&F cost /tonne Freight cost/tonne Other costs Operating costs Operating profit/tonne
Source: Company, Angel Research

2QFY2013 1QFY2013 2QFY2012 chg (%) yoy chg (%) qoq

5,005 763 1,144 990 849 3,932 4,913 700 1,051 1,003 670 3,662 4,164 625 1,017 797 801 3,544 20.2 22.1 12.5 24.2 6.0 10.9 1.9 9.1 8.8 (1.4) 26.7 7.4

1,073

1,250

619

73.2

(14.2)

October 23, 2012

UltraTech Cement | 2QFY2013 Result Update

Investment arguments
Indias largest cement manufacturer: Post the merger of Samruddhi (erstwhile cement division of Grasim) with itself, ULTC is now Indias largest cement player with a pan-India presence. The company has also acquired a controlling stake in Dubai-based ETA Star. ETA Stars manufacturing facilities include a 2.3mtpa clinkerization plant and a 2.1mtpa grinding capacity in UAE, and 0.4mtpa and 0.5mtpa grinding facilities in Bahrain and Bangladesh, respectively. ULTC has a capital outlay of `10,400cr to be spent over setting up additional clinkerization plants at Chattisgarh and Karnataka along with grinding units and bulk packaging terminals across various states. Post these expansions, the companys total capacity is expected to increase by 10.2mtpa, which is expected to be operational by FY2014. Pan-India presence to insulate ULTC from price volatility: ULTC has been enjoying good brand equity, which has only strengthened post Samruddhis merger along with being insulated from the wide variations in regional demand and price volatility. Post the merger, ULTC has been enjoying synergic benefits by way of superior operating efficiencies due to its large size. Increased use of captive power to protect margins: Currently, ULTC has 504MW of power capacity. The company is planning to expand its capacity by 70MW. Increased use of captive power for its overall power requirements would help the company to maintain healthy operating margins. Outlook and valuation: We expect ULTC to post a 14.6% and 16.6% CAGR in its top-line and bottom-line over FY2012-14, respectively. At current levels, the stock is trading at EV/tonne of US$178 on FY2014 capacity, which we believe is fair. We continue to remain Neutral on the stock.

Exhibit 5: One-year forward EV/Tonne

500,000 450,000 400,000 350,000 EV (` mn) 300,000 250,000 200,000 150,000 100,000 50,000 0 May-06 May-07 May-08 May-09 May-10 May-11 May-12 Sep-05 Jan-06 Sep-06 Jan-07 Sep-07 Jan-08 Sep-08 Jan-09 Sep-09 Jan-10 Sep-10 Jan-11 Sep-11 Jan-12 Sep-12 EV/tonne $70 $100 $130 $160

Source: BSE, Company, Angel Research

October 23, 2012

UltraTech Cement | 2QFY2013 Result Update

Exhibit 6: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements UltraTech Cements Reco CMP (`) Tgt. Price (`) Upside (%) FY2014E P/BV (x) FY2014E P/E (x) FY2012-14E EPS CAGR FY2014E EV/tonne^ RoE (%) US $

Neutral Neutral Neutral Neutral Neutral

Neutral

1,404 203 98 126 187

4,124

3.1 3.5 0.8 1.0 1.6

3.4

16.9 15.7 8.0 7.1 10.2

15.8

8.5 25.7 12.8 41.7 6.2

20.0

19.2 21.1 10.2 14.6 17.0

23.6

136 184 63 50 65
138

Neutral

2,021

3.1

16.6

16.6

20.1

204

Source: Company, Angel Research; Note: *Y/E December; ^ Computed on TTM basis

Company Background
UltraTech (ULTC) became India's largest cement player on a standalone basis, with total capacity of 48.8mtpa, post the merger of Samruddhi (erstwhile cement division of Grasim) with itself in 2010. ULTC also acquired a controlling stake in Dubai-based ETA Star (cement capacities of 3mtpa in the Middle East and Bangladesh) in 2010, which took its consolidated total capacity to 51.8mtpa. ULTC is a pan-India player, with 22 cement plants spread across the country. Of its total capacity, the southern, western and northern regions constitute the maximum share (26%, 26% and 23%, respectively), as against 14% by the eastern and northeastern region and 11% by the central region.

October 23, 2012

UltraTech Cement | 2QFY2013 Result Update

Profit and loss statement (Standalone)

Y/E March (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of net Sales) Depreciation& Amortization EBIT % chg (% of net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Adjusted PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers

FY2009 FY2010 FY2011 6,383 61 6,444 15.7 4,679 607 1,727 218 2,127 1,765 (1.0) 28 323 1,442 (6.7) 22.6 126 45 3 1,362 (9.6) 1,362 384.4 28 977 977 (3.0) 15.3 78 78 (3.0) 7,050 67 7,116 10.4 5,079 1,023 1,431 251 2,375 2,038 15.5 29 388 1,650 14.4 23.4 118 56 4 1,588 16.7 1,588 494.9 31 1,093 1,093 11.9 15.5 88 88 11.9 13,210 164 13,374 87.9 10,668 1,855 3,123 667 5,023 2,707 32.8 20.5 766 1,941 17.7 14.7 277 122 7 1,786 12.5 1,786 382.0 21 1,404 1,404 28.4 10.6 51 51 (41.7)

FY2012 FY2013E FY2014E 18,166 147 18,313 36.9 14,166 2,576 4,304 831 6,454 4,147 53.2 22.8 903 3,245 67.2 17.9 224 372 11 3,393 90.0 3,393 946.7 28 2,446 2,446 74.2 13.5 89 89 74.2 21,197 171 21,368 16.7 16,592 2,914 4,584 997 8,097 4,776 15.2 22.5 957 3,820 17.7 18.0 219 335 9 3,936 16.0 3,936 1,098.2 28 2,838 2,838 16.0 13.4 104 104 16.0 23,850 193 24,043 12.5 18,436 3,272 4,960 1,087 9,117 5,607 17.4 23.5 1,086 4,521 18.4 19.0 232 325 7 4,614 17.2 4,614 1,287.4 28 3,327 3,327 17.2 13.9 121 121 17.2

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

October 23, 2012

UltraTech Cement | 2QFY2013 Result Update

Balance sheet (Standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders funds Total loans Deferred tax liability Other Long term liabilities Long term provisions Total Liabilities APPLICATION OF FUNDS Gross block Less: acc. depreciation Net Block Capital work-in-progress Goodwill Investments Long term loans and adv. Current Assets Cash Loans & advances Other Current liabilities Net Current Assets Misc. exp. not written off Total Assets 7,401 2,765 4,636 677 1,035 1,372 104 382 886 1,253 119 6,467 8,078 3,136 4,942 259 1,670 1,472 84 351 1,038 1,299 173 7,044 17,942 6,542 11,401 682 3,730 562 3,619 145 904 2,570 3,339 280 16,655 19,014 7,380 11,634 1,897 3,789 1,462 4,161 188 1,164 2,809 4,071 90 18,873 21,514 8,336 13,177 4,897 2,489 1,462 4,472 194 909 3,369 4,821 (349) 21,676 27,514 9,422 18,092 1,897 3,589 1,462 5,275 254 1,262 3,758 5,432 (157) 24,882 124 3,478 3,602 2,142 723 6,467 124 4,484 4,609 1,605 831 7,044 274 10,392 10,666 4,125 1,730 22 112 16,655 274 12,586 12,860 4,119 1,738 35 121 18,873 274 14,929 15,203 4,579 1,738 35 121 21,676 274 17,676 17,950 5,039 1,738 35 121 24,882 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

October 23, 2012

UltraTech Cement | 2QFY2013 Result Update

Cash flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Add: Interest expenses Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2009 FY2010 FY2011 1,362 323 (113) 126 45 210 1,442 (823) (864) 45 (1,641) 401 73 126 203 4 101 104 1,588 388 (90) 118 56 389 1,559 (259) (635) 56 (838) (537) 87 118 (742) (21) 104 84 1,786 766 (93) 277 122 519 2,095 (1,223) (542) 122 (1,642) 1 (1) 141 252 (392) 61 84 145 FY2012 FY2013E FY2014E 3,393 903 (541) 224 372 947 2,659 (2,286) (58) 372 (1,973) 0 8 426 224 (643) 44 145 188 3,936 957 445 219 335 1,098 4,124 (5,500) 1,300 335 (3,865) 460 495 219 (254) 5 188 194 4,614 1,086 (132) 232 325 1,287 4,187 (3,000) (1,100) 325 (3,775) 460 580 232 (352) 61 194 254

October 23, 2012

UltraTech Cement | 2QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

25.7 19.3 7.0 0.3 4.1 14.8 4.1 78.5 78.5 104.4 5.8 289.3 22.4 71.8 1.1 18.4 4.6 0.6 26.9 25.2 34.8 31.0 1.0 37 12 99 (2) 0.3 0.6 11.5

23.0 17.0 5.5 0.3 3.6 12.6 3.6 87.8 87.8 119.0 7.0 370.2 23.2 68.8 1.1 17.0 4.3 0.5 22.9 24.4 26.6 26.6 0.9 39 11 92 3 (0.0) (0.1) 14.0

39.4 25.5 5.2 0.3 4.3 20.9 3.4 51.2 51.2 79.2 5.1 389.2 14.5 78.6 1.1 13.0 7.6 0.4 15.0 16.4 17.2 18.4 1.0 38 11 79 3 0.0 0.1 7.0

22.6 16.5 4.3 0.8 3.0 13.3 2.9 89.3 89.3 122.2 15.6 469.2 17.7 72.1 1.0 13.3 3.9 0.4 16.6 18.3 19.9 20.8 1.0 40 14 95 0 0.0 0.0 14.5

19.5 14.6 3.6 0.9 2.6 11.3 2.5 103.5 103.5 138.4 18.1 554.7 17.9 72.1 1.1 13.7 3.6 0.3 16.8 18.8 22.9 20.2 1.1 38 14 98 (5) 0.1 0.4 17.4

16.6 12.5 3.1 1.0 2.4 10.1 2.3 121.4 121.4 161.0 21.2 654.9 18.8 72.1 1.0 14.1 3.5 0.3 17.2 19.4 23.0 20.1 1.0 40 14 101 (7) 0.1 0.2 19.5

October 23, 2012

UltraTech Cement | 2QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

UltraTech Cement No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

October 23, 2012

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