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UltraTech Cem: Hurt by flat sales & high costs
May 10, 2011

UltraTech Cement has announced its 4QFY11 and full year financial results. On a like-for-like comparison basis, the company’s sales and operating profits have reported a decline of 2% YoY and 38% YoY respectively. Here is our analysis of the results.

Performance summary
  • Combined domestic cement and clinker sales volume grows by 0.8% YoY during the quarter and by 1.5% YoY during the full year.
  • On a like-for-like (LFL) comparison basis, the company’s topline declines marginally by 1.7% YoY during the year ended March 2011. The growth is impacted by the overall bleak scenario in the cement industry.
  • Poor realisations and high input costs lead to a 38% contraction in operating margins (EBIT).


Financial performance: A snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Sales 19,094 44,901 135.2% 70,497 132,099 87.4%
Expenditure 15,067 34,692 130.2% 50,786 106,676 110.0%
Operating profit (EBDITA) 4,026 10,210 153.6% 19,711 25,424 29.0%
Operating profit margin (%) 21.1% 22.7%   28.0% 19.2%  
Other income 258 1,094 323.7% 1,227 2,867 133.6%
Depreciation 993 2,267 128.2% 3,881 7,657 97.3%
Interest 285 829 191.4% 1,175 2,771 135.8%
Profit before tax 3,007 8,208 173.0% 15,882 17,862 12.5%
Tax 721 940 30.3% 4,949 3,820 -22.8%
Profit after tax/(loss) 2,285 7,268 218.0% 10,932 14,042 28.4%
Net profit margin (%) 12.0% 16.2%   15.5% 10.6%  
No. of shares (m)                 274  
Diluted earnings per share (Rs)*         51.2  
P/E ratio (x)*         20.5  

The results for the current quarter and financial year 2010-11 include Samruddhi Cement Limited’s performance as well. Thus, FY11 numbers are not comparable with the corresponding period of the previous year.

What has driven performance in FY11?
  • UltraTech Cement reported a marginal 1.7% YoY decline in net sales for the year ended March 2011. This was mainly on the back of poor cement realisations. The combined cement and clinker sales volume registered a meagre 1.2% YoY growth as cement demand remained subdued.

  • Along with weak volume growth and poor realisations, there was a substantial increase in input and energy costs. While imported coal prices increased by 27% YoY, domestic coal prices rose by 30% YoY in March 2011. The company’s variable costs soared by 13% YoY on account of rise of costs of fly ash, slag and energy. As a result, the operating margin declined from 28% in FY10 to 19.2% in FY11. Further, the net profit margin dipped from 15.5% in FY10 to 10.6% in FY11.

    The company has planned a capex of about Rs 110 bn over the next 3 years for setting up of additional clinkerisation plants at Chhattisgarh and Karnataka together with grinding units, bulk packaging terminals and ready mix concrete plants across the country. These expansion projects are expected to be commissioned by early FY14. As a result, the company’s cement capacity will increase by 9.2 m tonnes per annum (mtpa).

  • The company’s board has recommended a final dividend of Rs 6 per share for the financial year ended March 2011.

What to expect?
During the financial year 2010-11, the cement industry grew at the slowest pace in last ten years. This was because the key consumer industries of cement such as construction and real estate witnessed a slowdown. High inflation continues to remain a major challenge and may deter spending in the short to medium term.

On the other hand, about 28 m tonnes of new cement capacity got added during FY11. This was in addition to the 60 m tonnes cement capacity added in the previous financial year. Thus, cement realisations were under tremendous pressure. The overcapacity scenario will continue for the next 3 years.

At the current prices of Rs 1049, the stock is trading at 20.5 times its trailing twelve month earning, making it expensively valued. We will update our research report shortly.

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