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UltraTech Cement: Hit by flat sales & high costs
Jan 31, 2011

UltraTech Cement has announced its 3QFY11 results. The company has reported an increase of 1% YoY in sales and a decline of 36% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Topline increases marginally by 0.9% YoY during the quarter. The growth is impacted by the overall bleak scenario in the cement industry.
  • Poor realisations and high input costs lead to a 7% contraction in operating margins.
  • Operating profits decline by 24.6% which culminate into the bottomline declining by 36.1% YoY.


(Rs m) 3QFY10 3QFY11 Change
Net Sales 36820 37150 0.9%
PBIDT 10190 7680 -24.6%
Operating profit margin 27.7% 20.7%  
PAT 4990 3190 -36.1%
Net Profit margin 13.6% 8.6%  

The results for the corresponding quarter of FY10 have been re-cast to include Samruddhi Cement Limitedís performance for a like-for-like comparison. Thus, current quarter numbers are strictly not comparable with the corresponding period of the previous year.

What has driven performance in 3QFY11?
  • UltraTech Cement reported a marginal 0.9% YoY increase in net sales for the quarter ended December 2010. The combined cement and clinker sales volume also grew by a meagre 1.2%. This was mainly on account of the prolonged monsoon, non-availability of resources, lower realty and infrastructure spending and de-growth in the markets of South India where the company has a significant presence. Also, while realisations rose by 12% QoQ, they fell by 3% YoY.

  • Along with poor realisations, there was a continuous pressure on the cost front with prices of imported coal rising from US $92/tonne in 3QFY10 to US$ 125/tonne in 3QFY11, an increase of around 36%. The power and fuel cost alone stood at 24% of net sales. Hence, margins remained under pressure. Operating profit margin dropped 7% YoY to 20.7% from 27.7% in 3QFY10.

  • Further, higher interest expense saw the bottomline declining by 36.1% YoY. The net profit margin dipped to 8.6% from 13.6% in the corresponding quarter last year.

  • The company has chalked out a capex plan of Rs 100 bn to be spent over the next 3 years. The plan includes setting up of additional clinkerisation plants at Chhattisgarh and Karnataka along with grinding units and bulk packaging terminals across various states. Upon completion, the additional 9.2 mtpa cement capacity will be operational from early FY14. This will take the companyís total domestic cement capacity to about 59 mtpa.

What to expect?
During 9mFY11, the industry witnessed a capacity addition of around 14 mn tonnes over and above the capacity addition of 60 mn tonnes in FY10. These factors have resulted in industry capacity utilisation at 75%. From FY12, cement demand is expected to grow around 8-10% on the back of the governmentís initiatives to boost rural development, infrastructure and housing. However, the pricing environment is likely to remain challenging. And given the rising energy costs due to the companyís greater reliance on imports, margins will remain under strain.

At the current price of Rs 1001, the stock is trading above the upper end of our valuation band. Hence, we reiterate our cautious view on the stock.

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