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Is Ultratech an ULTRA investment?

Upside potential for this company is accentuated by up-cycling in cement demand across the country, the government’s focus on infrastructure and the ability of the company to integrate acquired assets at a record pace.

Ultra Tech Cement Ltd. is India’s largest manufacturer of Grey Cement, Ready Mix Concrete and white cement. The Aditya Birla Group, UltraTech’s parent company, is in the league of Fortune 500 companies. The company has a consolidated capacity of 102.75 Million Tonnes Per Annum (MTPA) of grey cement. UltraTech Cement 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. UltraTech Cement 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 November, Ultratech acquired Binani Cement Limited (BCL). It has now re-named as UltraTech Nathdwara Cement Limited (UNCL).

Business and Financial Performance

For the FY19, the company reported a profit after tax (PAT) of Rs 2431.6 crore, 9.3% increase compared to FY18 PAT of Rs. 2224.5 crore. Growth in Revenue from operations was 17.3% for FY19, which increased from Rs. 31,872.45 crore to Rs. 37,379.20 crore. Total expenses during the year on a consolidated basis went up at Rs 28,812.8 crore as compared to Rs 34,279.4 crore in FY18. Costs were high as compared to the last financial year. Overall energy cost rose 14% from 938/t to 1,068/t, attributable to an increase in pet coke. Raw materials cost saw an increase of 4% from 473/t to ` 491/t due to increase in slag, iron ore, aluminous clay and fly-ash prices and coal prices. Logistics cost increased from 1,124/t to 1,170/t, due to an increase in diesel prices by 16%. Domestic sales volume registered a 20% growth, which is higher as compared to likely industry growth of ~ 13%

Financial Summary

Operating Revenues of the Company have grown at a CAGR of 11.5%, whereas EBITDA has grown at a CAGR of 11.0% for the last 5 years. Consolidation in Northern and Western region leading to increased capacity, along with with the increasing share of value-added products (more than 30% in Q3 FY19) and SBU outlets (7% of total sales in FY19) have driven operating revenues in the recent years. Although the raw material prices increased in the recent financial year, leading to a drop in EBITDA margin, however, this was partly offset by the use of renewable energy sources leading to decreased energy costs and improvement in lead time decreasing logistic costs.

Due to an increase in slag, iron ore, aluminous clay and fly-ash prices and additional limestone on the transfer of limestone mines, there was an increase in overall COGS in FY2019 at 17.5% of sales as compared to 17.1% in FY2018. This was one of the major reasons for the drop in EBITDA margins from 19.7% in FY2018 to 18.1% in FY2019. However, with increased capacity in 2020, the Company is expecting to achieve economies of scale and cost benefits due to the strategic position of the limestone reserves of UltraTech Nathdwara Cement Limited. Hence, margins are expected to improve on accounts of these.

Investment thesis

Our focus on UltraTech Cement is due to current up-cycle in cement demand, its strong brand positioning with it strong geographical presence, consistent margins and acquisition of Binani Cements, JAL and century cement which provides them entry into low penetrated areas such as southern and eastern markets supported by improving demand scenario of the economy as well as its pricing power to mitigate inflationary risks.

For a complete report on Ultratech Cement please write a mail to

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