A FUNDAMENTAL ANALYSIS OF

ULTRATECH CEMENT LTD.

CEC- Security Analysis and Portfolio Management (4539221)
Narmada College of Management
By:
Dhurvkumar Vanza (2110)
Vrajeshwari Yadav (2163)
Fundamental Analysis:Fundamental analysis is an approach to arrive at the ‘correct price’ of the security.
Objective:
To analyse the
To estimate the
performance of
intrinsic value of the
UltraTech Cement
stocks of the
company of Indian
selected companies.
cement industry.

It reduces the risk of

To assist the
loss from buying an
investors in making
overpriced stock or
investment decisions
selling an under-
in cement industry.
priced stock.
Framework: TOP-TO-BOTTON Approch

ECONOMY

INDUSTRY

COMPANY
 ECONOMY ANALYSIS
Aims at determining if the economic climate is conducive and is capable of
encouraging the growth of business sector, especially the capital market.

When the economy expands,

most industry groups and
companies are expected to
benefit and grow

When the economy declines,

most of the sectors and
companies usually face
survival problems
GDP Growth Rate: GDP is the measure of the
total amount of goods and services produced in a country
during a particular year.
The real GDP growth in 2021-22 stands at 8.7 per cent, 1.5 per cent higher than the
real GDP of 2019-20.
According to the estimates of the World Bank, GDP of India is worth 1217 billion USD
or 1.96% of the world GDP.
India GDP growth rate for 2021 was 8.95%, a 15.54% increase from 2020.
India GDP growth rate for 2020 was -6.60%, a 10.33% decline from 2019.
India GDP growth rate for 2019 was 3.74%, a 2.72% decline from 2018.
India GDP growth rate for 2018 was 6.45%, a 0.34% decline from 2017.
The RBI projects the real GDP growth projection at 6.8% in 2022-23 and at 7.1% for Q1
2023-24.
Inflation rate: measure that causes the prices of both goods
and services to rise over time and buyers will feel the pinch as it affects their
personal finance, particularly spending and buying habits.

Crucial to determine one’s purchasing power.

India’s inflation rate was 5.88% in Nov. 2022.
India inflation rate for 2021 was 5.13%,
India inflation rate for 2020 was 6.62%,
India inflation rate for 2019 was 3.73%,
India inflation rate for 2018 was 3.94%,
Unemployment Rate: the share of the labor force that is without work but available for
and seeking employment.

Unemployment Rate in India increased to 8 percent in

November from 7.80 percent in October of 2022.

India unemployment rate for 2021 was 5.98%.

India unemployment rate for 2020 was 8.00%,.
India unemployment rate for 2019 was 5.27%.
India unemployment rate for 2018 was 5.33%.
Interest Rate:
Reserve Bank of India (RBI), the central banking institution of India controls the
monetary policy of the Indian currency. The key repo rate has been hiked on 7
December 2022 by the Monetary Policy Committee (MPC) of the Reserve Bank of
India (RBI) by 35 basis point to 6.25%.

India interest rate for 2021 was 1.2%, a 4.6% decline

from 2020.
India interest rate for 2020 was 3.4%, a 3.5% decline
from 2019.
India interest rate for 2019 was 6.9%, a 1.5% increase
from 2018.
India interest rate for 2018 was 5.4%, a 0.1% increase
from 2017.
FDI: direct investment equity flows in the reporting
economy.

According to data released by the Ministry of Commerce and

Industry on Saturday, FDI to India almost doubled to $83.6
billion in 2021-22 from $ 45.15 billion in 2014-2015.
The year 2021-22 recorded the highest ever FDI at $83.6
billion. This FDI has come from 101 countries, and invested
across 31 UTs and States and 57 sectors in the country.

India foreign direct investment for 2020 was $64.36B.

India foreign direct investment for 2019 was $50.61B.
India foreign direct investment for 2018 was $42.12B.
India foreign direct investment for 2017 was $39.97B.
Exchange rate
The Indian foreign exchange market trades mainly US Dollars(USD)
Manufacturing:

India manufacturing output for 2021 was $446.50B, a 22.32% increase from 2020.
India manufacturing output for 2020 was $365.03B, a 4.32% decline from 2019.
India manufacturing output for 2019 was $381.51B, a 5.15% decline from 2018.
India manufacturing output for 2018 was $402.24B, a 1.01% increase from 2017.
Infrastructure facilities:

Access to electricity is the percentage of population with access to electricity.

Electrification data are collected from industry, national surveys and international
sources.
India electricity access for 2020 was 99.00%, a 1.69% increase from 2019.
India electricity access for 2019 was 97.31%, a 1.61% increase from 2018.
India electricity access for 2018 was 95.70%, a 3.58% increase from 2017.
India electricity access for 2017 was 92.12%, a 2.91% increase from 2016.
INDUSTRY ANALYSIS
 Statistics from Nov. 22 from IBEF

RANK SECTOR COMPOSITION KEY PLAYERS

KEY TRENDS
GOVERNMENT INITIATIVES

for multimodal connectivity. Gati Shakti will bring synergy to create

world-class, seamless multimodal transport network in India. This w
boost the demand for cement in the future.
 ROBUST
DEMAND
As per Crisil Ratings, the Indian
cement industry is likely to add
~80 million tonnes (MT) capacity
by FY24, the highest since the
last 10 years, driven by
increasing spending on housing
and infrastructure activities.
LONG-TERM INCREASING
POTENTIAL INVESTMENTS
Oligopoly market, where large
FDI inflows in the industry, related
players have partial pricing
to the manufacturing of cement
control.
and gypsum products, reached US$
5.48 billion between April 2000-
Low threat from substitutes.
June 2022.
Indian cement companies are
The demand for affordable houses,
amongst the world greenest
with a ticket size of <Rs. 40-50 lakh
cement manufacturers.
(US$ 53,694- 67,118), is expected
to rise in Tier 2 and 3 cities, leading
to an increase in demand for
cement.
SWOT Analysis
• Production Capacity: Indian Cement Industry is the • High oil-prices:increases the transportation
and production costs.
second largest. • Lower cost export markets: Markets like
• accounts more than 8% of the total installed Egypt and Turkey have low export cost.
capacity in the world. • Multiple players in the Regional
• Relatively Low energy cost: The Indian Cement Industry:highly fragmented. There are many
small and medium enterprises, but these
Industry is one of the most energy efficient industry enterprises are not capable for economy of
of the world. scale.
• Attractive Profit Margin: very high because of the
low-cost manufacturing of the raw materials.
• helps to increase the mid and small level enterprise
which produce cement.
• Government Support: Because of the government
support and tax-free environment, the industry is
thriving. Strengths Weaknesses

Threats Opportunities

• Oil-price volatility: the cement industry costing is dependent on • Smart Cities:focus on infrastructure boost,
the oil price. Because of the political turf in the global politics the which will give the boost to the economic
prices of oil are very volatile. This directly impacts the prices and growth
profit level of the cement industry which at the end hampers the
growth of the sector.
• Over-Supply situation: The increased capacity of the MNCs and
local players may create a situation of oversupply to create a
massive price fall for cement.
PORTER’S FIVE FORCES
ANALYSIS OF INDIAN
CEMENT INDUSTRY
. Threat of new entrants •High level of entry barriers.
2. Power of suppliers •Moderate. Have enough power to stall production.
3. Power of buyers •Low. Hold very little power.
4. Threat of Substitutes •Low. No effective substitutes for cement exist
5. Competitive Rivalry •High. Highly competitive market exists
 Barriers to
Entry (High)

4. Inter firm rivalry(high) Threat of

highly competitive markets in India. substitutes
(low)
Large scale players with huge capital invested in setting up the production units. This factor r
the exit barrier for the companies.
• Lack of effective substitutes.
• Ultimate material used for almost all type of construction work

They stay in the industry and start aggressive competition.

The differentiation in types of cement is marginal, hence the switching cost to customers is n
high, so firms compete intensely to gain market share.
Overcapacity leads to a price war and competition intensifies. The market share of the top fo
companies accounts to 39.80% currently. It is believed that if these four companies do not
increase their market share in the coming years, then their combined share could drop to 34
PESTLE ANALYSIS
Political

The price of cement is primarily controlled by following rates which are

predominantly control by government.
to increase its investment in infrastructure to US $ 1 trillion in the Twelfth Five Year
Plan (2012-17) will lead to increase in the demand of cement
During election period, cement demand increases as compare to normal period
The total Government levies and taxes, which include Royalty on Limestone, Royalty
on Coal, Electricity Duty, VAT/Sales Tax etc., on cement constitute about 60% or
more of the ex-factory price of cement. The levies and taxes on cement in India are
far higher compared to those in countries of the Asia Pacific Region.
Economic factors:
Cement demand is proportional to growth in GDP of the nation.
Average cement demand to GDP ratio was 1.2 during the last decade. The cement
industry is growing at the rate of 8 to 10% CAG following the growth rate of GDP

Growth in tourism sector fuelling the increase in the construction of hotels in the country

Upcoming industrial clusters and infrastructure development in emerging tier-ll and tier
III cities

he growing population and increased urbanization in the country

Increasing per capita income leading to increase in housing demand to meet the current
shortages and future growth
Social
Indian consumers prefer buying branded cement like ULTRATECH, JAYPEE CEMENT, LAFARGE CEMENT etc.
It has been seen in the past, as well, that mini cement plants with low brand value and image are not able
to survive against the cement giants
Looking at the growth rate of Indian cement industry and capacity expansions, it is expected that cement
industry will create good number of jobs in the next 4-5 years
Technological
Technological development in the design of cement kiln and furnace can promote
use of cement kiln for utilization of wastes like tires etc. which can help in reducing
the usage of costly fuels like coke, coal etc. thereby reducing the manufacturing
cost of cement

Effectively finding the location of limestone reserves and efficient mining practices
can lead to reduction in per tonne cost of limestone

Effectively finding the location of limestone reserves and efficient mining practices
can lead to reduction in per tonne cost of limestone
LEGAL Factors:
Land acquisitions for limestone mining land, setting up of integrated units and
grinding units requires proper legal procedure
Environmental Factors:
dust emissions from various sources for existing cement plants is 150 mg/Nm3 and
100 mg/Nm3 for plants located in critically polluted areas, the limit for new plants
in our country is 50 mg/Nm3 which is at par with some of the developed countries

an energy intensive process with very high emission, it has to use state of art
equipment to have energy efficiency and meet environmental standards
The Strategy of UltraTech Cement
PRICING STRATEGY
• UltraTech cement being India's largest producer of cement they play “Price
Leadership”
• Price leadership in which the dominant player fix a price and competitor follow
the price
• Here the UltraTech can play a huge game by lowering price the competitor in
market can reduce in numbers. It mainly depend on the cost of production and
market share of the company
• They reduce the distance to market and have the optimum use of rail, road and
sea transportation
• Increase in the use of pet coke gives them a cost advantage Key Contributor
 
Company analysis
ULTRATECH CEMENT
• Largest manufacturer of grey cement, RMC, and white cement in India.
• One of the leading cement producers globally.
• As a brand embodies 'strength', 'reliability' and 'innovation'.
• Operations: India, UAE, Bahrain, Bangladesh, and Sri Lanka.
• India's largest exporter of cement.
• 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 0.68 MTPA and 2 wallcare putty plants.
• Consolidated capacity of 116.8 million tonnes per annum (MTPA)
• Consolidated capacity of 15 MTPA of white cement
• 27 grinding units, 22 integrated plants, 7 bulk terminals and 1 clinkerisation plant
• Total consolidated revenue of Rs. 44,239 crore (US$ 6.04 billion) in FY21
• The largest manufacturer of ready mix-concrete in India.
UltraTech Cements Competitors
Top 5 competitors:
1. Ambuja Cement
2. ACC Limited
3. Shree Cement
4. The Indian Cement
5. JK Cements
Levered/Unlevered Beta of UltraTech Cement Limited
UltraTech Cement Limited shows a Beta of 1.19.
This is slightly higher than 1. The volatility of UltraTech Cement Limited according
to this measure is slightly higher than the market volatility.
RATIO ANALYSIS
Return on Equity: - a measure of financial performance calculated by
dividing net income by shareholders' equity. Because shareholders' equity is equal to a
company’s assets minus its debt, ROE is considered the return on net assets.
Return on Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
Equity 14.34 12.32 14.25 8.64 8.61

INTERPRETATION:

ROE for ULTRATECH CEMENT was 8.61% in 2018-19. It has

increased to 8.64% in 2019-20.

In 2022-23 it has increased to 14.34%.

This shows a significant growth in shareholder’s equity

and also shows the shareholder value created by the
organization.
Book Value per Share: is the ratio of equity available to
common shareholders divided by the number of outstanding shares. This figure represents the
minimum value of a company's equity and measures the book value of a firm on a per-share
basis.
Book Value per Share Mar-22 Mar-21 Mar-20 Mar-19 Mar-18

1706.82 1501.91 1326.83 1016.20 943.99 INTERPRETATION:

Higher ratio indicates the good position

of the company.
face value of Rs.10 each in March-18
was Rs.943.99, which has increased
continuously.
In March-22 Book value of share is
Rs.1706.82. This shows the significant
growth rate within the time period of 5
years.
Earnings per Share:
a company's profit divided by the outstanding shares of its common stock.
The resulting number serves as an indicator of a company's profitability. It
is common for a company to report EPS that is adjusted for
extraordinary items and potential share dilution.

INTERPRETATION:
In 2019-2020, EPS has increased to Rs.87.84.
This shows the increment in the profit of the company.
This indicates almost double growth in EPS against year
2018-19.
In 2021-22 EPS has reduced by Rs.3.95 which shows
overall reduction in the profit of the company.

to this EPS was reduce in March-21. But in March-22,

there was a significant increase in profit of the company.
Due to this, EPS reached to a level of Rs.244.80.
 
Dividend Per Share (DPS):
the sum of declared dividends issued by a company for every ordinary share outstanding. DPS is calculated by dividing the total dividends paid
out by a business, including interim dividends, over a period of time, usually a year, by the number of outstanding ordinary shares issued.

INTERPRETATION:

In March-2018 DPS was Rs.10, which has increased to Rs.13.19 in

March-2020. In March-2021, DPS has reduced by Rs.0.20, but in
March-22, it has increased to Rs.36.96.

In March-22, DPS was Rs.36.96, which was highest within the time
period of 5 years.
INTERPRETATION:
Dividend Pay-out Ratio: the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. It is the percentage of earnings
paid to shareholders via dividends. The amount that is not paid to shareholders is retained by the company to pay off debt or to reinvest in core operations.

Low
  dividends resorts to high retentions to take care of the
growth factor, may affect the price of the share of the firm.
A high dividend may leads to rise in the market price of
the share but affects the future financing.
Debt Equity Ratio: -
Used to evaluate a company’s financial leverage and is calculated by
dividing a company’s total liabilities by its shareholder equity.
It is a measure of the degree to which a company is financing its
operations with debt rather than its own resources.
Debt Equity Ratio Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
0.64 0.85 0.88 1.29 1.10

INTERPRETATION:
• Debt-Equity ratio in March-18 was 1.10.
• It implies that for every Rs.110 of outside
liabilities, the firm has Rs.100 owner’s capital.
• In March-2020 ratio has decreased to 0.88.
• In March- 2022 it reduces to 0.64.
CONCLUSION:
What is the Intrinsic Value of ULTRATECH CEMENT?
Fair Value [Median EV /     EBIDTA Model]: Rs. 6,300.62

Fair Value [Median EV   /  Sales Model]: Rs. 4,572.57

Fair Value [Median Price     / Sales Model]: Rs. 4,627.47

Is ULTRATECH CEMENT Undervalued or Overvalued?

As on Dec 22,2022, ULTRATECH CEMENT is Over Valued based on the estimates of
intrinsic value and hence may not be a good buying opportunity according to Share
Valuation at this time!