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UltraTech: Topline flat, margins shrink
Apr 22, 2013

UltraTech Cement has announced its financial results for the quarter and financial year ended March 2013. During the quarter, the company reported a rise of 1% YoY in net sales and 16.3% YoY decline in net profits. Here is our analysis of the results:

Performance summary
  • On a standalone basis, sales grow by 1% YoY during the quarter as volume sales remain almost flat.
  • Operating profits decline by 5.5% YoY due to higher input and logistics costs.
  • While depreciation charges increase by 5.5% YoY, interest costs drop by 18.4% YoY.
  • Net profits decline by 16.3% YoY during the quarter; net margins decline from 16.3% in 4QFY12 to 13.5% in 4QFY13.
  • During the financial year 2012-13 (FY13), consolidated sales and net profits increased by 10.9% YoY and 11.4% YoY respectively.
  • The company's board of directors has recommended a dividend of Rs 9 per share for the financial year FY13.


Financial performance snapshot
  Standalone Consolidated
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Sales 53,337 53,892 1.0% 190,775 211,561 10.9%
Expenditure 40,651 41,899 3.1% 150,385 164,798 9.6%
Operating profit (EBDITA) 12,686 11,993 -5.5% 40,389 46,764 15.8%
Operating profit margin (%) 23.8% 22.3%   21.2% 22.1%  
Other income 1,955 1,833 -6.2% 5,258 4,666 -11.3%
Depreciation 2,332 2,460 5.5% 9,629 10,234 6.3%
Interest 586 478 -18.4% 2,564 2,523 -1.6%
Profit before tax 11,723 10,888 -7.1% 33,454 38,672 15.6%
Tax 3,050 3,626 18.9% 9,481 11,791 24.4%
Profit after tax/(loss) 8,673 7,262 -16.3% 23,973 26,881 12.1%
Minority interest - -   (60) 103  
Net proft 8,673 7,262 -16.3% 24,033 26,777 11.4%
Net profit margin (%) 16.3% 13.5%   12.6% 12.7%  
No. of shares (m)       274.1 274.2  
Diluted earnings per share (Rs)*         97.7  
P/E ratio (x)*         19.1  
*trailing twelve-month earnings

What has driven performance in 4QFY13?
  • UltraTech Cement reported 1% YoY rise in net sales for the quarter ended March 2013. In volumes terms, domestic cement and clinker sales of grey cement remained almost flat at 11.13 m tonnes. Sales of white cement declined by 4.3% YoY to 1.56 m tonnes.

  • Operating profits decreased by 5.5% YoY on account of higher input and logistics costs. Raw material costs (15.8% of net sales) and freight and forwarding costs (22.2% of net sales) increased by 1.3% YoY and 1.7% YoY (as a percentage of net sales). The higher costs were due to hike in railway freight and diesel prices.

  • On the other hand, power and fuel costs (19.6% of net sales) decreased by 2.6% YoY (as a percentage of sales) on account of softening international coal prices. The company's operating margins declined from 23.8% in 4QFY12 to 22.3% in 4QFY13.
  • Operating cost break-up
    (Rs m) 4QFY12 4QFY13 Change
    Cost of raw materials 6,698 7,613  
    Change in inventory 493 257  
    Purchases of stock-in-trade 498 625  
    Total Raw Materials 7,688 8,495 10.5%
    % of net sales 14.4% 15.8%  
    Employee expenses 2,195 2,609 18.8%
    % of net sales 4.1% 4.8%  
    Power & fuel 11,841 10,559 -10.8%
    % of net sales 22.2% 19.6%  
    Freight & forwarding expenses 10,905 11,955 9.6%
    % of net sales 20.4% 22.2%  
    Other expenses 8,020 8,280 3.2%
    % of net sales 15.0% 15.4%  
    Total operating expenses 40,651 41,899 3.1%
    % of net sales 76.2% 77.7%  

  • The other income declined by a 6.2% YoY during the quarter. While depreciation charges increased by 5.5% YoY, interest costs decreased by 18.4% YoY. Profit before taxes declined by 7.1% YoY during the quarter.

  • Tax expense during the quarter includes additional charge for deferred tax liability of Rs 866.3 m on account of hike in rate of surcharge on income tax as proposed in the Finance Bill 2013. As a result, the effective tax rate was higher by 7.3% during 4QFY13. As a result, net profits decreased by 16.3% YoY. Net profit margins declined from 16.3% in 4QFY12 to 13.5% in 4QFY13.

  • Some of the company's projects have been commissioned and, as a result, its domestic cement capacity has increased from 48.75 m tonnes to 50.9 m tonnes. Further, the company's board has approved 2.9 m tonne capacity expansion at Aditya Cement Works in Rajasthan. The capex for this project would be about Rs 20 bn, to be funded through a mix of internal accruals and borrowings and is expected to be commissioned by March 2015. With all the ongoing projects, the company's cement capacity is set to increase to 61.45 m tonnes over the next couple of years.

  • The company's board of directors has recommended a dividend of Rs 9 per share (face value Rs 10) for the financial year FY13.

What to expect?

Cement demand has remained subdued on account of the ongoing slowdown in the economy. At the same time, factors such as high operating costs and excess cement capacity have been weighing on profitability of the sector. While cement demand is expected to grow at about 7-8% per annum over the long term, the performance over the short to medium term is likely to be subdued.

At the current prices of Rs 1,867 the stock is trading at 19.1 times its FY13 consolidated earnings. We believe that at the current level, the stock is trading above our valuation band. As such, we reiterate our 'Sell' view on the stock from a 2-3 year perspective.

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