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UltraTech: Retail housing supports volume growth - Views on News from Equitymaster

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UltraTech: Retail housing supports volume growth
Apr 21, 2009

Performance summary
  • For FY09, topline grows by 16% YoY led higher volumes and higher cement prices.
  • In 4QFY09, topline and operating profit grew by 16% YoY and 9% YoY respectively.
  • Rising cost of operation led to 4.6% contraction in EBITDA margins for the fiscal.
  • Net profits decline by 3% YoY in FY09 on the back of subdued performance at the operating level and on account of higher corporate costs (finance charges and depreciation).


Financial performance snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 16,010 18,601 16.2% 55,088 63,831 15.9%
Expenditure 11,116 13,271 19.4% 37,830 46,767 23.6%
Operating profit (EBITDA) 4,895 5,331 8.9% 17,258 17,064 -1.1%
EBITDA margin 30.6% 28.7%   31.3% 26.7%  
Other income 280 287 2.8% 1,007 1,036 2.8%
Interest 212 340 60.3% 823 1,255 52.5%
Depreciation 650 906 39.4% 2,372 3,230 36.2%
Profit before tax/(loss) 4,312 4,372 1.4% 15,070 13,615 -9.7%
Tax 1,483 1,277 -13.9% 4,994 3,844 -23.0%
Profit after tax/(loss) 2,829 3,095 9.4% 10,076 9,770 -3.0%
Net margin 17.7% 16.6%   18.3% 15.3%  
No of shares (m)       124 124  
Diluted EPS (Rs)*         78.5  
P/E (times)         7.2  
*trailing twelve month earnings

What has driven performance in QFY09?
  • During FY09, UltraTech Cements reported 16% YoY growth in the topline on account of sustained demand for the commodity and higher cement prices. The company has not declared the full year volume numbers but being a leading player it must have benefited from the favourable demand scenario. Our belief is further supported by the fact that during 4QFY09, the company reported double digit growth of 11% YoY outperforming industry growth which stood at 9% YoY. Being the peak time for construction activity, increased demand led to the 16% YoY growth in topline during 4QFY09. Despite economic slowdown, good monsoon and governments’ stimulus packages supported growth in retail housing sector.

    Cost break up
    (as a % of sales) 4QFY08 4QFY09 FY08 FY09
    Consumption of raw materials 11.2% 13.8% 9.5% 9.6%
    Staff cost 3.1% 3.0% 3.0% 3.4%
    Power and fuel 23.1% 21.8% 22.8% 26.8%
    Outward freight 17.6% 16.7% 17.6% 16.8%
    Other expenditure 14.4% 16.0% 15.8% 16.6%

  • Operating profits declined marginally by 1.1% for the fiscal as costs continue to grow at a faster pace as compared to the topline growth. Variable costs grew by 23% YoY during FY09 on account of higher energy and raw material costs, which hurt the profitability of the company. While softening of crude prices provided some respite during 4QFY09 yielding a 12% reduction in variable costs, the gain was neutralised by higher rail freight costs.

  • Net profit growth came in lower at 3% YoY in FY09, while during 4QFY09 the same grew by 9% YoY, led by growth in operating profits. In FY09, subdued performance at the operating level, higher interest costs and depreciation charges exerted pressure on bottomline growth.

What to expect?
The company has expanded its capacity to 21.9 MTPA from 18.2 MT. Following the commissioning of its grinding unit in Karnataka and cement mills in Andhra Pradesh Cement Works, its capacity will be scaled up to 23 MTPA. The same is expected to go on stream by the end of 1QFY10. The company has also commissioned 192 MW capacity power plants raising its total capacity to 236 MW, which will meet nearly 80% of the company’s power requirement. While these moves will enable the company to sustain market share and keep a check on rising cost of operation, upcoming capacities amidst economic slowdown will pressurize realisations and hence profitability.

The company has outperformed our expectations on account of its robust 4QFY09 performance. At the current price of Rs 564, the stock of UltraTech Cements is trading at an EV/tonne of over Rs 3,300 based on our FY11 estimates. We maintain our view on the stock and shall soon update our research report on the company.

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