Equity

Research: Cement Sector/Industry

in India




Zankhan Chandarana
18021141028
MBA 2018-2020

1
 Table of Contents

Table of Contents
ACKNOWLEDGEMENT ............................................................................................................ 4
Executive Summary ................................................................................................................ 5
Introduction ........................................................................................................................... 6
Phases of Indian Broking Industry ...................................................................................................... 6
Demand & Supply Drivers ................................................................................................................... 7
Critical Success Factors ....................................................................................................................... 7
Porter Five Forces Analysis of Indian Stock Broking Industry ............................................................ 8
Top players in the Indian Stock Market ............................................................................................. 9
About Nirmal Bang Securities Private Limited ........................................................................ 10
Basic Information ........................................................................................................................... 10
Mission & Vision ............................................................................................................................ 10
Products and Services Offered ........................................................................................................ 11
Project Specific Analysis ........................................................................................................ 12
Objective of the Project .................................................................................................................. 12
Research Methodology .................................................................................................................. 12
Schedule ........................................................................................................................................ 12
Limitations ..................................................................................................................................... 12
My efforts to overcome the limitations .......................................................................................... 13
Economy Industry Analysis ............................................................................................................. 13
History of Cement Industry in India ................................................................................................. 13
SWOT Analysis ............................................................................................................................... 14
Industry Profile .............................................................................................................................. 15
Cement Manufacturing Process ....................................................................................................... 15
Segmentation of the Industry ........................................................................................................... 18
Market Size and Distribution ............................................................................................................ 18
Region Wise Cement Capacity of the Indian Cement Industry ......................................................... 19
Trends and charts .............................................................................................................................. 20
Cement Consumption vs Production ................................................................................................ 20
Per Capita Consumption ................................................................................................................... 20
Classification of cement .................................................................................................................... 22
Demand Drivers in Cement Industry ................................................................................................ 22
Cost Drivers in Cement Industry ....................................................................................................... 23
Cement Industry – Regional in Nature ............................................................................................. 26
Cement Demand ............................................................................................................................... 26
Summary of Cement Demand .......................................................................................................... 31
Cement Supply .................................................................................................................................. 31
Company Analysis ................................................................................................................. 33
UltraTech Cement .......................................................................................................................... 33

2
 About the Company .......................................................................................................................... 33
Product Portfolio ............................................................................................................................... 33
Share Holding Pattern ....................................................................................................................... 33
Capacity of Ultratech Cement ........................................................................................................... 34
Footprint of Ultratech Cement ......................................................................................................... 34
Zonal Capacity: .................................................................................................................................. 35
Financial Analysis of 2017-2018 Financial Statements ..................................................................... 36
Sales Volume ..................................................................................................................................... 37
Net Revenue ...................................................................................................................................... 38
EBITDA & EBITDA Margin ................................................................................................................. 39
Profit After Tax .................................................................................................................................. 40
2019 – Performance at a glance ...................................................................................................... 41
Capacity Utilisation over the 4 quarters of FY 2019 ........................................................................ 41
EBITDA Analysis ................................................................................................................................ 42
Projected Income Statement ............................................................................................................ 45
Key conference-call takeaways ....................................................................................................... 46
Relative Valuation ................................................................................................................. 46
References ............................................................................................................................ 47

3
 ACKNOWLEDGEMENT
I would like to use this opportunity to thank everyone who has helped me throughout the
course of this MBA internship. I cherish the guidance, invaluable constructive criticism and
friendly advice given to me during these two months which have helped me complete this
internship successfully.

I express my deep sense of gratitude to Mr. Sunil Jain, Head of Equity Research at Nirmal Bang
Securities Private Limited for firstly in suggesting this project to me as well as his constant
support and guidance.

I am ever so grateful to Mr. Nandish Shah, my mentor and guide for the 2 months. Without
your help, guidance & patience I would have not been able to make this project as well as
transforming the internship into a successful learning process.

I would like to thank my faculty mentor, Dr.K.P.Venugopala Rao, without his timely inputs
regarding the expectations from the project, I would not have been able to form this project in
a successful manner and I would also like to thank him for every valuable suggestion he has
given for the betterment of the project.

An last but not the least, I want to extend a huge feeling of gratefulness and humility to all my
fellow workers at Nirmal Bang Securities Private Limited, especially Mrs. Archana Bhattacharjee
for all the love, acceptance, guidance and encouragement you bestowed on me during my 2
months here at Nirmal Bang. I will always cherish the support and help you have given me
without which this learning process would be incomplete.

Everyone mentioned has helped mould me into a better professional with insights and
suggestions that have helped me widen my horizons and have taught me so much. The skills
and experience that I have received in the last 2 months has been my biggest learning.

Thanking you,

Zankhan Rajen Chandarana

4
 Executive Summary
The purpose of this report is to do equity research on Cement sector whereby opportunities of
investment yielding higher returns can be analysed. The industry is analysed on the basis of
various factors and indicators. Ratios were calculated and then the growth and value of the
stocks were estimated.

The basics of Technical analysis are understood, including various types of graphs, and the same
is used to relate to the stocks and price charts of the companies under consideration.

This report will help the investors to know about the current growth prospects of Indian
Economy in relation with Cement sector. A basic understanding of the factors affecting this
sector and their impact on the growth of the sector can be attained. As a result, investors can
take better investment decisions.

Nirmal Bang Securities Private Limited, one of the leading stock broking companies in India,
caters to retail and institutional clients by offering them a range of financial products and
services, including equities, derivatives, commodities, currency derivatives, mutual funds, IPOs,
insurance, depository services and PMS.

To conclude, we will look at the broking industry as whole as well and gain insights on the top
players of the cement sector and their performance over the years.

5
 Introduction


Phases of Indian Broking Industry

In 1991, Manmohan Singh, as Finance Minister in Narasimha Rao’s government, embarked on a
programme of liberalization prompted by an acute balance-of-payment crisis.

Indian Brokerage Industry-Pre 2000
• Post liberalization period i.e post 1991
• Business restricted to friends and relatives for the purpose of trading
• Settlement (T+15) days.
• Low trade volumes- No derivatives trading allowed, derivatives was allowed only in June
2000
• Lack of investment in technology

Indian Brokerage Industry 2000-2008

• Venture capitalist started funding brokerage businesses.
• Investment in technology was made - Front end and back end.
• National presence as the branches began spreading out
• Integrated risk management system (IRMS)
• Derivatives trade was started from June 12, 2000
• Margin funding facility was started for the retail clients.

6
 Indian Brokerage Industry 2009 onwards
• Mega shift from transaction oriented to the research and portfolio based advisory
• Focus on franchisee based business model.
• Dematerialized accounts access for international trade.
• Access to international stock exchange.
• Trading on hand held platform allowed.

Demand & Supply Drivers

a. Demand Drivers
• Availability of information
• Access to alternatives
• Potential yield
• Risk Rating
• Liquidity

b. Supply Drivers
• Money supply
• Interest rates
• Inflation
• Economic conditions
• Government Regulations

Critical Success Factors

7
Seeing the overall brokerage as a single unit, the key success factors or the winning strategy of
Indian Brokerage Industry is a mixture of:
• People, Process, Technology

Porter Five Forces Analysis of Indian Stock Broking Industry

a. Competition in the Market

• The industry is now in a fairly high growth phase.
• During the downturns such as 2008-2009 periods, the smaller players were squeezed
out.
• Contrast Consolidation
b. Potential of New Entrants

• A new entrant will require higher amount of capital to enter this business.
• Many new entrants in the future because of contrast consolidation
• Smaller player though will exit be selling out or closing.

c. Power of Suppliers

• Not relevant in broking industry except when it comes to Investment Banking.

d. Power of Consumers

• Important in the case of Institutional brokerage business where consumer can bargain in
terms of high & low brokerage.
• Non-existent when it comes to all kinds of retail segments

e. Threat of Substitutes

• Not at all applicable as all the products offered are very similar and hardly have any
difference

8
Top players in the Indian Stock Market

The following table depicts the increase in the number of clients of the top 5 broking firms in
India.

Source : Nirmal Bang Securities

9
About Nirmal Bang Securities Private Limited

Basic Information

Nirmal Bang Securities Private Limited is a Private incorporated on 12 September 1997. It is
classified as Non-govt. company and is registered at Registrar of Companies, Mumbai. Its
authorized share capital is Rs. 285,000,000 and its paid up capital is Rs. 59,310,700.

Directors
Dilip Bang Mishrilal
Kishore Mishrilal Bang
Sunil Hanumanmal Jain
Sameer Kamdar Pranlal
Rakesh Premchand Bhandari

Office Address:
B-2 302,MARATHON INNOVA,GANPATRAO KADAM MARG PENINSULA CORPORATE PARK
LOWER PAREL WEST MUMBAI Mumbai City MH 400013 IN

Date of Incorporation: 12th September 1997
Company CIN: U99999MH1997PTC110659
Registration Number: 110659



Mission & Vision

Mission: “To work together with integrity and make our customers feel valued.”

Vision: “To create valuable relationships and provide the best financial services most
professionally.”

Core Value: “Respect our colleagues and the business itself.”

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Products and Services Offered

Equities &
Derivatives
Trading

Depository
Forex Trading
Services

Products
&
Services

Margin
Commodities
Funding

Institutional
Broking

11
 Project Specific Analysis

Objective of the Project

• To provide a general overview of the Cement sector in India
• To identify the growth and demand drivers of the particular sector
• To see the impact of the factors affecting the cement industry on the industry leader
Ultratech cement
• Conducting fundamental analysis of the top players in the cement sector and the impact
on company’s performance and financials due to the changes in certain factors

Research Methodology
The data collected would be secondary wherein the information collected would be on the
cement sector through various websites, news articles, industry reports etc.

The annual report and annual results of the companies will be the primary source of data when
it comes to collecting data related to the performance of the company.

Schedule
The 8 week summer internship programme will be primarily focused towards the learning of
the cement industry. As my guide correctly put it to me, “ You should be able to answer any
question related to cement industry in the future.” The initial 4 weeks will be targeted towards
understanding of the cement industry. The various factors that will affect the prices of the
various raw materials, operating costs etc. April being the month in which most of the
companies will publish their performance for the FY 2019-2020, the second half of the
internship will be more focussed on understanding the annual reports of Ultratech cement and
the potential impact of these factors and the company performance on the share prices of the
company.

Limitations
The time limit of 8 weeks is a very limited timespan to conduct the research as the cement
industry is very dynamic. The chances of missing out key areas is high.

The secondary data used for the purpose of the research is not fully reliable.

Natural calamities can totally toss the estimates which have been made and can send the
numbers for a toss.

12
My efforts to overcome the limitations

• Since the research is only being carried out for two months, to do justice to the
research, data was collected from various sources and several reports had been read
thoroughly.
• The data being secondary in nature was thoroughly verified again by reading several
reports from leading rating agencies, companies own annual reports etc.

Economy Industry Analysis

History of Cement Industry in India
a. Indian Cement Industry Pre Independence

• 1889 – Calcutta Based Company started manufacturing cement from kankar (stones)
• 1904 – First Organized venture by South India Industries Ltd. in Madras to manufacture
portland cement (Unsuccessful & had to halt)
• 1914 – First licensed venture by India Cement Company Ltd in Porabandar, Gujarata
(Available capacity of 10,000 tones)
• Production exceeded demand
• 1927 – Concrete Association of India was formed

b. Indian Cement Industry Post Independence

• Characterized by slow growth rate due to low prices, slow growth in capacity
• Government intervention was a failure
• 1956 - Price and distribution control system was set up to ensure fair prices for both the
manufacturers and consumers

c. Period of Restriction (1969-1982)

• Government implemented Direct & Indirect measures

• Direct – By exercising authority over production, capacity and distribution of cement
• Indirect – Price Control
• 1977 – Government authorized higher prices for cement produced by new companies
or companies increasing their capacity
• 1979 – Three tier pricing system (Prices based on cement production capacity)

13
 d. Partial Control (1982-1989)

• 1982 – Quota system, 66.60 % Sales to Government & Small Real Estate Developers.
New & Sick units 50%. Remaining 33.40% & 50% in open market
• Desired effect as manufacturers profits increased

e. Post Liberalisation

• 1989 – Complete freedom to the manufacturers

• 1991 – Industry was De-Licensed
• Export Sales was permitted
• Increased & Accelerated growth

SWOT Analysis

Strength

• India is the 2nd largest producer of cement in whole world and china is at 1st place.
• India is a developing country so production cost of cement is very less due to low cost
and easy availability of labour
• Availability of high grade limestone mines also brings down the cost of production of
cement drastically in India.

Weakness

• The gap between demand and supply or the Demand Supply Gap
• Overcapacity of the cement industry vis a vis the demand
• GDP impact over cement companies
• Increased cost power/fuel
• High interest rate on borrowings for housing sector

Opportunities

• Strong growth of Indian economy

• Increased infrastructure & housing sector growth
• Technological advancements in machines and equipment’s for production process of
cement in India.
• Foreign Direct Investment

Threat

• Power shortage & rising cost of power may affect cement production
• Government rules to provide rebate for foreign companies

14
Industry Profile

Cement Manufacturing Process

1. Limestone Benching, Drilling & Blasting

• Limestone for making cement is required in various forms and in various particular
components. For the same, various samples are taken for particular levels in a mine.
These levels are known as steps. The samples taken from different steps are then
compared to pre-determined quality standards set. This is known as limestone
benching.
• Breaking the benched limestone into smaller fragments is known as limestone blasting.
Primary blasting is where the limestone is first broken into smaller pieces. If the pieces
are not small enough, they are further broken down into smaller pieces which is known
as secondary blasting.

2. Crushing

• Limestone is then crushed and reduced to storable sizes. The raw materials are then
grinded in a primary grinder first and then in a secondary grinder if required.

2.a Pre Homogenous Stage (Reclaiming)

• Crushed limestone is packed and this is very important as this crushed limestone is
transported. Additives like silica, alumina and iron ore are added to make it of a uniform
quality.

3. Raw Mill Grinding

• Reclaiming is followed by raw milling, raw meal is grounded into fine powder so that it is
able to pass through the kiln.

4. Blending & Storage

• Blending is carried out in silos. Typically, two or more silos are used in parallel. The raw
meal is continuously blended in the first silo and then passed onto the second silo for
further homogenisation.

5. Pre Heating Stage & Kiln

• After the blending and storage, the material is then heated and in the case of modern
cement plants in India, it is also at times pre heated to enhance the quality of the
product. The vertical cyclone chambers are used through which raw material passes

15
 through the kiln and the hot gases are used to pre-heat the material as they swirl
through the cyclones which rises more than 200 feet from the kiln.
• The solid material or the feed passes down the kiln while rotating and flows in the
opposite direction of the flame, which passes down the kiln while it rotates, flows in the
opposite direction to the flame. The flame is ignited using gas, oil or pulverised coal. The
various processes after the feed is fed into the kiln are as follows : The evaporation of
water and the decomposition of clay minerals begin at 300C to 650C, calcite starts
forming at 800C to 950C, liquidisation of the feed begins at 1250C and clinker forms at
1400C

6. Process Profile
• The processed are primarily divided in to the following four categories:
a. Dry Process
o The kiln feed has a moisture content of about 0.5% and is the most commonly
used process across the world. The feed is pre heated and put into a similar
cyclone system as explained earlier. The gas temperature is around 500C to
3500C. At the kiln entrance the temperature is 7500C for solids and 12,000C for
gases.

b. Wet Process
o The moisture content over here is 30-40%. The feed is fed directly through the
upper end of the kiln. The kiln is 6 metres in diameter and 200 meters in length.
Steel chains are hung in the dry zone near the entrance to transfer the heat from
the hot gases to the moist slurry feed.

c. Semi Wet Process
o Combination of the wet and dry process. The moisture content is generally
around 20%. The feed is directly fed into a long chain kiln or a pre heater and a
short kiln.

d. Semi Dry Process
o In the semi-dry process, the raw meal is pre-treated as in the dry process. The
feed or the raw meal using inclined rotating dish or drum is made into nodules of
around 15mm spheres with moisture content of about 12%. The nodules are
then fed into the grate where partial drying, pre heating and partial de-
carbonation takes place. The treatment after that is exactly like the dry process.

16
 7. Cement Grinding

• Cement is produced by grinding cooled clinker with gypsum (hydrated calcium

sulphate). Either naturally available gypsum or chemically manufactured gypsum is
used. Gypsum is added to regulate the setting time of cement. The clinker is ground in a
ball mill, which is a tubular mill partly filled with steel balls.

17
Segmentation of the Industry

• The Indian Cement Industry typically consist of three major categories which are as
follows:

Indian Cement
Industry

Players Confined Standalone

Pan India Players
to a region Players

Market Size and Distribution

Cement production capacity stood at 502 million tonnes per year (mtpy) in 2018. Capacity
addition of 20 million tonnes per annum (MTPA) is expected in FY19- FY 21.

The top 20 cement companies account for almost 70 per cent of the total cement production of
the country. A total of 210 large cement plants account for a cumulative installed capacity of
over 410 million tonnes, with 350 small plants accounting for the rest. Of these 210 large
cement plants, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.

Source: Crisil report and Nirmal Bang Securtities

18
Region Wise Cement Capacity of the Indian Cement Industry

Source: IBEF.com/Cementindustry

19
Trends and charts

Cement Consumption vs Production

Per Capita Consumption
Although India is the second largest cement producers in the world, its per capita consumption
of cement remains the lowest amongst the developing countries.

India has a per capita consumption of 201kg of cement which when compared to the world
average of 580kg leaves a significant gap. The low per capita consumption of cement can also
be attributed to India’s growing population.

20
The list for the per capita consumption of cement(in kgs) is as follows:

Per Capita Cement Consumption (in KG's)

1800
1600
1400
1200
1000
800
600
400
200
0
China Turkey
Vietnam World
Russia
Brazil
USA
India

Per Capita Cement Consumption (in KG's)

The chart above clearly indicates the potential of India to move form around 210 kg per capita
consumption to the world average of 580 kgs.

21
Classification of cement

India produces different types of cement which are defined below and consist of different
chemical proportion.

• Ordinary portland cement

• Portland pozzolana cement
• White cement
• Water proof cement
• Specialized cement
• Rapid hardening portland cement
• Portland blast furnace slag cement
• Ready Mix Concrete (RMC)

These classification of cement will be explained in detail in the final report.

Demand Drivers in Cement Industry

Cement consumption can be broadly classified into demand from three segments:

• Housing and real estate (63-65%)

• Infrastructure (22-25%)
• Commercial and Industrial development (10-12%)

The Construction and Cement Industry share a high correlation of 0.99.

22
Cost Drivers in Cement Industry
There are four major costs associated with the production of cement:

• Power & Fuel Costs (30% of Cost of Sales)

1. Pet Coke

The Indian cement industry saw an overall increase in the operating margins for the FY 17 due
to decrease in the price of pet coke which is used by most of the cement companies along with
coal to power their kilns.

However, rise in the pet coke prices in FY 18 has reversed the effect. Cement companies have
found it very difficult to translate this hike and this had led to increase in the input prices of
cement.

With pet coke prices remaining firm, EBITDA margins of the company are declining in FY 18 and
companies are shifting to alternate fuels i.e imported coal.

As can be seen, the pet coke prices were on a decline from April 2015 and increasing ever since
September 2016.

23

The demand for petcoke can be seen increasing in spite of increase in price is mainly
attributable because of its high calorific value and absolute consumption of petcoke is unlikely
to decline.

• Raw Material Cost (30%-40% of Cost of Sales)

1. Limestone

Limestone is the primary raw material in the making of cement. Other raw materials include Fly
Ash, Gypsum and slag.

According to the data availed from the Indian Bureau of Mines, Limestone distribution is as
follows:

Limestone Reserves (Proven)

3.2
16 9

26
37

Central Western Northern Southern Eastern

24
 • Selling Expense (10% of Cost of Sales)

Since the cement plants are located near limestone reserves, there is a considerable
difference between cement manufactirung facilities and the end user markets. Cement
being a low value – high volume commodity, the transportation costs are generally pretty
high.

Hence the selling expenses account for roughly about 10 percent of the cost of sales. The
Clinker units are generally located near the limestone reserve and the grinding unites are
closer to the consumption places.

Transportation of clinker is generally cheaper than that of cement. Railway is preferable

when it comes to transportation of over 500km, roads are preferable when the distance is
short as it avoids secondary handling whereas sea routes are the cheapest but can be
exploited by coastal players only.

• Other expense (15-20% of Cost of sales)

25
Cement Industry – Regional in Nature
Cement is a high-volume, low-value commodity. Transporting over long distances adds to the
cost, resulting in lower margins to the players. This makes cement a regional commodity where
lower distribution cost makes it remunerative to producers. Cement consumption varies region-
wise because the demand-supply balance, per capita income and level of industrial
development differ in each state and region.

Cement Demand

Demand Dynamics

June to September
August January to March
Low Demand
(Trough) High Demand
(Nadir)

1. Southern Region

The demand remained on a particularly lower side due to slow housing demand, weak
industrial capital expenditure and slow housing demand. However due to the recent
government announcements in the field of infrastructure sector and rural housing, the demand
is estimated to increase at 7% to 8% Year on year FY19E/FY20E reversing the impact of GST
Implementation and demonetisation.

26

The southern region reported a flat growth from FY 2012-2013 to FY 2016-2017 with a CAGR of
1.29%. Demand in south to increase at ~9% YoY in FY19, led by strong growth in AP/Telangana
and a moderate revival in TN due to a better monsoon season and a favourable base.

2. Western Region

The demand for the western region sees a CAGR of 3.56% as compared because of weak
demand for the urban housing in the western region.

27
 3. Northern Region

FY12-13 to FY 16-17 saw a CAGR of 2.59% but when you look at the demand from FY 15-16 to
FY 16-17, the demand declined by approximately 8mt.

4. Central & Eastern Region

28

The Central and the Eastern region over the last 5 years reported a CAGR of 6.63%/3.62% from
FY 12-13 to FY16-17 due the following points:

Focus on infrastructure and low cost housing schemes developing the eastern region.

Forecasts for the next two years for demand of cement:

The industry growth will be pegged at approximately around 7% to 8% over the next two
years due to:

1. Housing sectors growth aided by rural market

• Pradhan Mantri Gramin Awas Yojana-Gramin (PMGAY-G) has promised to build around
30 million houses by 2022.
• Normal monsoon prediction by the government will lead to rural demand outpacing the
urban demand over the period of the next 2 years.

2. Government spending on the Infrastructure creation

• The government of India (GOI) is very eager and keen to develop an infrastructure that
brings India on the world map.
• This has led to projects like dedicated freight corridors, new and upgraded ports and
airports, expansion on the Indian Railways, improved irrigation facilities etc.
• All these projects will have a direct connection to the strong growth of the industry over
the next two years.

29


Source : Nirmal Bang Securities

Source: IBEF.org

30
Summary of Cement Demand

Industrial &
Housing Infrastructure
Commercial

Roads & Highways -

30 million houses by
Make in India, Smart Increase in
2022 and 20 million
City Etc government
for weaker sections
investments by 1.8x

PMAY (Pradhan Metro and airport

Mantri Awas Yojana) projects

Incrase in urban 100 Smart cities

population planned

The texts in all shades of green will have impact on the cement demand, the ones in dark blue
will have moderate impact and the ones in light blue will have low impact

Cement Supply

While the demand for cement is expected to grow at around 7% to 8% over the next two years,
the supply during the same time is expected to grow at a CAGR of 3.2% approximately.

Although the CAGR standing only at approximately 3.2% but the same is on the back of a
capacity addition of 240MT in the industry which will keep the demand and supply gap at the
100mt to 140mt in FY20E.

31
Region Wise cement Supply

32
 Company Analysis

UltraTech Cement

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 leading cement producers globally. UltraTech as
a brand embodies 'strength', 'reliability' and 'innovation'. Together, these attributes inspire
engineers to stretch the limits of their imagination to create homes, buildings and structures
that define the new India. The company has a consolidated capacity of 102.75 Million Tonnes
Per Annum (MTPA) of grey cement. The company has 20 integrated plants, 1 clinkerisation
plant, 26 grinding units and 7 bulk terminals. Its operations span across India, UAE, Bahrain,
Bangladesh and Sri Lanka. It 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.

Product Portfolio

The major categories of are as follows:
I. Ultratech Cement
II. Ultratech Concrete
III. Ultratech Building Solutions
IV. Ultratech Building Products
V. Birla White Cement
VI. White Topping Concrete

Share Holding Pattern

Holder's Name No of Shares % Share Holding
Promoters 166670914 60.69%
Foreign Institutions 54935075 20%
General Public 14687769 5.35%
Others 13890870 5.06%
Financial Institutions 13122427 4.78%
NBanksMutualFunds 8275579 3.01%
Foreign Promoter 2744168 1%
GDR 202022 0.07%
Central Government 113896 0.04%

33

Capacity of Ultratech Cement

Particulars Unit Of Measurement Current Capacity
Grey Cement (including Metric Tonne per 102.8
overseas) Annum(MTPA)
White Cement + Wall Care Metric Tonne per 1.5
Putty Annum(MTPA)
Captive Power Plants Mega Watts 1052
Green Power Plants Mega Watts 48

Footprint of Ultratech Cement

20
Integrated
units

21 Grinding
5 Jetties
Units
UltraTech
Cement
Ltd

2 White 6 Bulk
Cement & Packaging
Putty Units Terminals

in addition to the above,
• 1 Integrated unit, 1 grinding unit and 1 Putty plant in progress
• 3 Integrated units and 1 Grinding unit under acquisition

34
Zonal Capacity:

The post-acquisition figures are related to Ultratech cements takeover of Century
Cements assets.

Zonal Capacity of Grey Cement of Ultratech

180 159
160
140
120 102
92
100
80 62 64
60
40 23.8 23.8 21.1 25.3 21.7 27.7 20.5 20.5
11.7 16.1
20
0
North Central East West South

Ultratech Cement Ultratech Cement (PA) Cement Industry

Source : Own, Nirmal Bang Securities

35
Financial Analysis of 2017-2018 Financial Statements

36
Sales Volume

Sales (MT)
70
59.33
60
47.96 48.87
50

40

30

20

10

0
2015-2016 2016-2017 2017-2018

Sales (MT)

Comment: The additional jump in the sales in metric tonnes was a result of the acquired
assets contribution to the sales. The increased presence in the rural market through the
Ultratech Building Solution outlets(UBS outlets) was also a major contributing factor which
increased the end consumer sales.

37
Net Revenue

Net Revenue (In Rs. Crores)

35000
29790
30000
23709 23891
25000

20000

15000

10000

5000

0
2015-2016 2016-2017 2017-2018

Net Revenue (In Rs. Crores)

Comment: The overall improvement in the sales volume and the slight upward movement of
the prices of cement across certain regions led to an increase of 24.69% YoY in the net revenues
of the company.

38
EBITDA & EBITDA Margin

EBITDA (In Rs. Crore)

7000 6478

6000 5629
5107
5000

4000

3000

2000

1000

0
2015-2016 2016-2017 2017-2018

EBITDA( In Rs. Crore)

EBITDA Margin (In %)

24.5

24

23.5

23

22.5

22

21.5

21
2015-2016 2016-2017 2017-2018

EBITDA Margin (In %)

The EBITDA in Rupees at 6478 is 15% higher YoY but the margin has dipped by 2% YoY (2016-17
to 2017-18). The increase in EBITDA is rupees and decrease can in margin can be attributable to
the following factors:

39
 • Overall increase in energy costs from Rs. 763 per tonne to Rs. 938 per tonne.
• Pet Coke which is one of the most commonly used source of power prices rose from
$66/tonne to $ 96/tonne which is almost a 45% YoY (2016-17 to 2017-18) increase. Also
ban on pet coke in the state of Rajasthan, Uttar Pradesh and Haryana slightly impacted
the prices.
• Raw materials cost saw an increase from Rs. 467 per tonne to Rs. 473 per tonne.
• The Logistics cost increased form Rs. 1074 per tonne to Rs. 1124 per tonne due to 7%
hike in the diesel prices.


Profit After Tax

Profit After Tax (In Crores)

2700
2628
2600

2500

2400 2370

2300
2231

2200

2100

2000
2015-2016 2016-2017 2017-2018

Profit After Tax (In Crores)

The PAT declined 15% (2016-17 to 2017-18) due to additional interest and financial charges
levied related to acquired assets.

40
2019 – Performance at a glance

Capacity Utilisation over the 4 quarters of FY 2019

Capacity Utilisation (in %)

80
78
78
76
74
74
72
70
70
68
66
66
64
62
60
FY2019Q1 FY2019Q2 FY2019Q3 FY2019Q4

Capacity Utilisation (in%)

The Capacity Utilisation in FY2019Q4 has been the highest in the last 28 quarters for ultratech
cement with Annual Growth rate of approximately 12%.

41
EBITDA Analysis

The overall better performance was a result of large dispatches especially from the newly
acquired plans of Jaiprakash Associates or JPA and Binani cements.

Volumes (mn mt)

25
20.89
20 17.63
17.5
15.8
15

10

0
FY2019Q1 FY2019Q2 FY2019Q3 FY2019Q4

Volumes (mn mt)

42
The operational performance also excelled as the cost control of 2% YoY from 2018.

Operational Costs (in Rs./Tonne)

4250
4200
4150
4100
4050
4000
3950
3900
3850
3800
FY2019Q1 FY2019Q2 FY2019Q3 FY2019Q4

Operational Costs (in Rs./Tonne)

This Lead to the overall EBITDA/Tonne shooting up sharply

Source: Nirmal Bang Securities, Own

EBITDA/Tonne
1200

1000

800

600

400

200

0
FY2019Q1 FY2019Q2 FY2019Q3 FY2019Q4

EBITDA/Tonne

43


The increase in raw materials costs were offset by decrease in the energy costs and hence the
EBITDA margin rose approximately 30% YoY. Also, due to the newly acquired cements amazing
performance, EDITDA/mt rose to Rs. 1060 from Rs. 943 YoY as can be seen from the table
above.

44
Projected Income Statement

45
Key conference-call takeaways

• Binani Industries assets mainly cater to the western region (Western Region). The
contribution from Binani Industries assets (Nathdhwara) was approximately 0.98mt in 4QFY19,
translating into capacity utilisation of 63% during the quarter.

• Non-trade sales contribute approximately 35% as Ultratech Cement continues to focus on

volume push. We at Nirmal Bang Securities expect this to continue over the next couple of
quarters.

• Ultratech cement will mainky shift their focus to deleverage their balance sheet in the next
two years. It is currently holding disposable assets worth Rs. 11 billion and are planning to clear
debt amounting to Rs. 5 Billion. They announced at their recent conference that the repayment
is scheduled to start from FY22.

• Ultratech Cement has planned capital expenditure worth Rs15bn in FY20, of which it plans to
spend Rs7bn on the Bicharpur coal block unit, WHRS units in four locations, another plant in
Nathdhwara district, Bara unit and a bulk terminal in Mumbai. Nathdhwara has shown better
capacity utilisation compared to other northern region units.

• Ultratech Cement is investing highly in renewable energy sources. It is expected to increase

at 10%.

• The unit at Dalla will be delayed because of technical and legal problems.

Relative Valuation
Please refer to the attached PDF named Relative Value_CementSector for detailed
calculations of the relative value based on the P/E of top three players of the cement
industry:

• Ultratech Cement
• Shree Cements
• Ambuja Cements

46
References
1. https://www.nirmalbang.com/Upload/UltraTech%20Cement-
%204QFY19%20Result%20Update-%2025%20April%202019.pdf
2. www.ibef.org
3. Crisil Data Report – Cement Sector 2008
4. Annual Report 2018-2018 – Ultratech cement
5. Shodhhgana (literature reviews)
6. http://www.careratings.com/upload/NewsFiles/Studies/Cement%20%20Sector%20Upd
ate%20H1%20FY%202019.pdf
7. https://www.moneycontrol.com/financials/ultratechcement/ratiosVI/UTC01?classic=tru
e
8. https://www.edelresearch.com/showreportpdf-40284/CEMENT_-_SECTOR_UPDATE-
MAY-18-EDEL

47