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UltraTech Cement: Domestic despatches cheer - Views on News from Equitymaster

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UltraTech Cement: Domestic despatches cheer

Jan 19, 2009

Performance summary
  • Topline grows by 18.2% YoY during the quarter on the back of volume growth and realisations.
  • Operating profits decline by nearly 8% YoY as costs continue to grow at a faster pace as compared to sales.
  • Despite lower fuel prices, variable costs are on a higher side on account of pipelined inventory.
  • Apart from lower operating profits, higher interest and depreciation costs further pressurise net margins. Net profits decline by nearly 15% YoY.
  • Bottomline for the nine month ended December 09 falls 8% YoY on the back of a 16% YoY growth in topline

Financial performance snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 13,802 16,308 18.2% 39,078 45,230 15.7%
Expenditure 9,126 12,000 31.5% 26,714 33,496 25.4%
Operating profit (EBITDA) 4,676 4,308 -7.9% 12,364 11,734 -5.1%
EBITDA margin 33.9% 26.4% 31.6% 25.9%
Other income 222 204 -7.9% 728 748 2.8%
Interest 186 359 93.2% 611 915 49.8%
Depreciation 583 805 38.0% 1,722 2,324 34.9%
Profit before tax/(loss) 4,129 3,348 -18.9% 10,758 9,243 -14.1%
Tax 1,334 964 -27.7% 3,511 2,567 -26.9%
Profit after tax/(loss) 2,795 2,384 -14.7% 7,247 6,676 -7.9%
Net margin 20.3% 14.6% 18.5% 14.8%
No of shares (m) 124 124
Diluted EPS (Rs)* 76.3
P/E (times) 5.1
*trailing twelve month earnings

What has driven performance in 3QFY09?
  • During 3QFY09, UltraTech Cements reported nearly 11% YoY and 6% YoY growth in production and sales volumes respectively. While domestic sales reported 12% YoY growth, export volumes have come in lower by 12%YoY during the same period under consideration. Though domestic realisations (total net sales divided by total sales volumes) remained sequentially flat, year on year basis they have grown by nearly 12%. Thus, on the back of sustained growth in volumes and realisations, UltraTech Cements witnessed 18.2% YoY growth in topline during 3QFY09.

    Cost break up
    (% of sales) 3QFY08 3QFY09 9mFY08 9mFY09
    Consumption of raw materials 7.9% 5.9% 8.8% 8.0%
    Staff cost 3.1% 3.9% 3.0% 3.6%
    Power and fuel 23.5% 32.3% 22.6% 28.9%
    Outward freight 17.0% 16.6% 17.6% 16.8%
    Other expenditure 14.6% 14.8% 16.3% 16.8%

  • The overall cost of operation grew by 31.5% YoY during 3QFY09. The costs have been on the higher side mainly on account of higher power and fuel cost and employee cost, which registered nearly 63% YoY and 50% YoY growth during 3QFY09. Softening of fuel prices was witnessed starting November. The benefit of the same is not reflected in 3QFY09 as the company consumed fuel out of earlier inventory. On account of this, variable costs were up by 35% YoY. Thus higher cost of operation hurt growth in operating profits.

  • Net profits declined by nearly 15% YoY on account of fall in operating profits and higher interest and asset replacement costs. During the quarter, the company revised the estimated useful life of some of the assets resulting in higher depreciation charges to the extent of Rs 20 m in 3QFY09.

What to expect?
    The company's capital expenditure plans are being executed as per schedule. The company had lined up huge capex plans to maintain its market share, cater to the increasing demand for the commodity and to improve efficiency. However, lull in real estate and infrastructure sectors on account of credit crunch has resulted in slackening of demand for cement. On account of the slowdown, the company expects volume growth to come in lower at 7% to 8% as compared to earlier estimates of 9% to 10%. The economic slowdown has impacted consumption. This will pressurise cement prices, which were anyways expected to cool off on account of upcoming capacities.

    The company has performed almost in line with our estimates. At the current price of Rs 379, it is trading at an EV/tonne of over Rs 2,300 based on our FY11 estimates. On an asset based valuation method, the stock is attractively valued at the current levels. We maintain our positive view on the stock.

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Mar 22, 2019 11:17 AM


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