Fundamental Analysis Of Ultratech Cement: Building Infrastructure requires a proper foundation and cement plays a crucial role in Construction. Cement is a binding agent to holds different materials using water to create strong structures. 

This material use is useful since it is easier to construct and requires less upkeep. In India, the growing population tends to spend more on constructing homes and other structures that meet their needs as disposable income rises. The trend is likely to increase as government onboards into spending. In this article, we will look into Ultratech Cement which operates in the Cement Sector.

Fundamental Analysis Of Ultratech Cement – Company Overview

UltraTech Cement was founded in 1983 by Kumar Mangalam Birla. In 1998, they merged Indian Rayon and Grasim’s cement business. Later in 2004 L&T and Aditya Birla Group agreed to sell L&T cement and this helped to expand its capacity. Later in 2009, L&T sold its remaining stake. In 2013, they acquired Jayaprakash Group’s cement business for Rs. 3,800 crore to expand further.  

The company’s product line includes Portland Pozzolana cement, Portland blast-furnace slag cement, and Ordinary Portland cement. Regular Portland cement is used in a range of applications, including plastering, masonry, and concrete products. The company’s clients are in the building and construction sectors.

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Their manufacturing footprint consists of 24 integrated production units, 30 grinding units, 8 bulk packaging terminals, and one clinkerization facility. Across 125 locations, UltraTech operates 270 Ready Mix Concrete (RMC) units, making it the largest concrete maker in India.

UltraTech, which operates under the Birla White brand, is a market leader in Indian white cement. UltraTech includes one white cement unit and three wall care putty units. They created the concept of UltraTech Creating Solutions (UBS) to offer individual home builders a one-stop shop for building their homes. There are over 3,600 Ultratech Building Solutions (UBS) outlets across 22 states in India. 

Segment Analysis

Ultratech Cement’s revenue comes only from the business of cement and cement-related products. Sales of manufactured goods generated 90.85% of revenue in FY23; sales of traded goods accounted for 7.71%. The remaining 1.44% of the revenue comes from other operating revenues which include scrap sales, lease rent, insurance claims, Government Grants, and some Miscellaneous Income. 

They derive majority of the revenues from 96.95% from India and remaining 3.04% from overseas. However, the domestic sales surged 22.15% YoY and while others dropped 14.90% YoY.

Industry Overview

The Indian government is increasing its capex. India is the world’s second-largest cement producer. The capacity of the Indian cement business is expected to increase at a compound annual growth rate (CAGR) of 4-5% during the next four years, ending in FY27. 

Thus, its installed capacity would begin at 715-725 MT/year at the start of the fiscal year 2028. By the end of FY27, 450.78 million tonnes of cement are expected to be utilized. Prime Minister Mr. Narendra Modi unveiled the “PM Gati Shakti – National Master Plan (NMP)” for multimodal connectivity in October 2021.

Together, Gati Shakti will construct an efficient, first-rate multimodal transportation network in India. This will boost the demand for cement in the future. The government is investing heavily in smart cities and urban infrastructure, while the real estate market is booming. 

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Fundamental Analysis Of Ultratech Cement – Financials

Revenue and Net Profit

Ultratech’s revenue from operations in FY23 stood at Rs. 63,2369.98 crore, a 20.23% increase from Rs. 52,598.83 crore. Net profits stood at Rs. 5,073.40 crore in FY23 compared to Rs. 7,334.26 crore, a decrease of 30.82%.

The company’s revenues are increasing. However, Net profits are fluctuating and in FY23 profit dipped. There was an exceptional income amounted Rs. 159.92 crore. In FY23, the profit from ongoing operations decreased by 29.28% year over year.

Particulars/ Financial YearRevenue from Operations (Cr.)Net Profit (Cr.)
2022-23₹63,239.98₹5,073.40
2021-22₹52,598.83₹7,334.26
2020-21₹44,725.80₹5,461.85
2019-20₹42,429.89₹5,750.88
2018-19₹37,379.20₹2,431.59

Profit Margins

The company’s OPM stood at 17.45% in FY23 compared to 22.64% in FY22. NPM was 7.96% in FY23 compared to 13.51% in FY22.

Both the ratios decreased in FY23. OPM was impacted due to rise in power and fuel expenses 29.23% of the revenue in FY23 and 23.07% in FY22. The increase impacted its net profit margins as well. In FY22 the margins were 13.51% and decreased significantly in FY23. Other Income contributes around 10% to Net profit in FY23.

Particulars/ Financial YearOPM (%)NPM (%)
2022-2317.45%7.96%
2021-2222.64%13.51%
2020-2126.49%11.70%
2019-2022.98%13.35%
2018-1918.29%5.71%

Return Ratios

Ultratech Cement operating in the construction sector has RoE of 9.69% in FY23, down from 15.50%. RoCE stood at 12.77% in FY23, down from 14.62% a year earlier. 

RoE has decreased in FY23 and the returns on additional capital from FY22 to FY23 declined. RoCE had a similar trend to RoE, however, the company has maintained a range between 9-15% over 5 years.

Particulars/ Financial YearRoE (%)RoCE (%)
2022-239.69%12.77%
2021-2215.50%14.62%
2020-2113.13%14.54%
2019-2015.80%11.63%
2018-197.98%9.92%

Debt Analysis

Ultratech had a debt to equity ratio of 0.21 in FY23 against 0.35 in FY22. The Interest Coverage ratio stood at 10.01 times in FY23 flat compared to 10.02 times in FY22. The company’s debt-to-equity ratio is low, and it has been declining for the past five years. Minimal debt can assist the business in reducing interest expenses.

This is seen in the interest coverage section, where the ratio has remained unchanged despite a decline in profits due to a decrease in interest costs. Low debt can improve the cash flow and can plan for further expansions through internal accruals in the future.

Particulars/ Financial YearD/EInterest Coverage
2022-230.2110.01
2021-220.3510.02
2020-210.546.39
2019-200.663.6
2018-190.752.95

Fundamental Analysis Of Ultratech Cement – Key Metrics

Here are some of the key metrics of Ultratech Cement.

ParticularsAmountParticularsAmount
CMP₹9,644.60Market Cap (Cr.)₹291,415
Stock P/E (TTM)45.44EPS (TTM)₹222.14
RoE (%) (TTM)10.14%RoCE (%) (TTM)13.00%
Promoter Holdings (%)59.96%FII Holdings (%)18.20%
Debt to Equity Ratio (TTM)0.2Interest Coverage Ratio10.01
Current Ratio (TTM)1.06Net Profit Margin (%)8.02%

Fundamental Analysis Of Ultratech Cement – Future Plans

  • Ultratech is looking for a Phase 3 expansion of 21.9 million tons capacity. The construction has begun and is ongoing. Expected to be completed by FY27.
  • The initial capex cash flow for FY24 is expected to be around Rs. 9,000 crore.
  • In FY25, capex is expected to be around Rs. 9,000 crore
  • The company intends to achieve net debt zero by the end of March 2025.
  • Green Energy Utilisation aiming around 85% and 34% solar utilisation target by 2030.
  • Future expansions involve WHRS and zero thermal power consumption.

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Conclusion

As we are at the end of the article, we will look at Ultratech Cement in brief. The company has been benefitting from the capex initiated by the government. Cement production is one of the contributors to global warming. Companies are looking for opportunities to improve the quality as well.

The company revenues are growing and profits are based on the controlling expenses. Debt is low and Returns are decent. What do you think about the company’s potential? Let us know in the comments section below.

Written by Santhosh

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