UltraTech Cement Fundamental Analysis and Future Outlook
UltraTech Cement is the largest manufacturer of grey cement, ready mix concrete (RMC) and white cement in India. It has a capacity of 118 MTPA and is the third-largest cement producer in the world, excluding China. The company has pioneered the UltraTech Building Solutions (UBS) concept to provide individual home builders with a one-stop-shop solution for building their homes. This is the first pan-India multi-category retail chain catering to the needs of individual home builders (IHBs).
- The business model is such the company is focused on capacity building and has grown both through organic growth and acquisitions.
- UltraTech acquired Jaypee Cement business (21.2 MTPA) in 2017 and has completed the merger of cement business of Century Textiles & Industries Ltd in 2019. This has made the company the largest cement producer globally (outside of China) to have more than 100+ million tonne capacity in one country.
- In the white cement segment, UltraTech has market presence under the brand name of Birla White. It has a white cement plant with a capacity of 0.56+ MTPA and 2 Wall-Care putty plants with a combined capacity of 0.8+ MTPA.
- UltraTech is also the largest manufacturer of concrete in India and has 100+ Ready Mix Concrete (RMC) plants across 35 cities. The company also has the ability to produce speciality concretes that meet the specific needs of bulk order customers.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Ultratech Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The COVID-19 lockdown will have a severe impact on cement consumption due to the halt in construction and infrastructure projects. The retail cement consumption will also show a sharp decline in FY2021. The company will, however, suffer from serious overcapacity due to its recent acquisitions. Any significant recovery is not expected before FY 2022.
- The cement plants for the company operated at the utilization of 79% in Dec’19 and dropped to 55% in the last quarter of FY2020. This is further expected to go down to 20–25% in the next few months and indicates a severe impact on the company’s financial health.
- The management has also taken steps towards brand transition which is currently completed for 55% of output. Further 84% of the output is expected to be transitioned into UltraTech Brand by year-end FY2021. However, the Baikunth plant of 2.4 MT will sell under the same old brand of Birla Gold for some time.
- The company is in the process of deleveraging but it would get delayed as the management will look forward to conserving cash in these uncertain times. The Cap-Ex guidance will also be trimmed significantly for FY 2021.
UltraTech has established market dominance due to its sheer scale, but this can be detrimental in the near future as it would only create overcapacity for the company. The company has also seen declining profitability and increased leverage which can worsen the situation.
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