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UltraTech Cement: No respite yet
Jun 11, 2014

UltraTech Cement has announced its standalone financial results for the fourth quarter (4QFY14) and the financial year 2013-14. During the quarter, the company's sales and profits improved by 8.2% YoY and 15.4% YoY respectively. However, for the full year FY14, the profits have declined by 19.2% YoY. Here is our analysis of the results:

Performance summary
  • On a standalone basis, sales improve by meager 8.2% YoY during the quarter on account of jump in cement prices and lack of pricing power. The sales for the full year stay flat and barely grew by 0.3% YoY for FY14.
  • Operating profits decline by 4.7% YoY as operating margins decline from 22.2% in 4QFY13 to 19.6% in 4QFY14. The operating profits decline by staggering 19.9% YoY during FY14.
  • Other income remains flattish and grows by mere 1.3% YoY during the quarter.
  • Depreciation charges and interest expenses increase by 13.2% YoY and 54.7% YoY, respectively during 4QFY14.
  • Net profits grow by 15.4% YoY on the back of improved sales during the quarter; however for full year FY14, they have declined by 19.2% YoY.

Standalone financial performance snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Sales 53,906 58,319 8.2% 200,230 200,779 0.3%
Expenditure 41,913 46,888 11.9% 155,045 164,619 6.2%
Operating profit (EBDITA) 11,993 11,430 -4.7% 45,185 36,160 -20.0%
Operating profit margin (%) 22.2% 19.6%   22.6% 18.0%  
Other income 1,833 1857.5 1.3% 4,620 5,310 14.9%
Depreciation 2,460 2,785 13.2% 9,454 10,523 11.3%
Interest 478.1 739.4 54.7% 2,097 3,192 52.2%
Profit before tax 10,888 9,764 -10.3% 38,254 27,755 -27.4%
Tax 3,626 1,384 -61.8% 11,700 6,310 -46.1%
Effective tax rate 33.3% 14.2%   30.6% 22.7%  
Profit after tax 7,262 8,380 15.4% 26,554 21,445 -19.2%
Net profit margin (%) 13.5% 14.4%   13.3% 10.7%  
No. of shares (m)       274.2 274.2  
Diluted earnings per share (Rs)*         78.2  
P/E ratio (x)*         35.4  
*trailing twelve-month earnings

What has driven performance in FY14?
  • UltraTech Cement reported 8.2% YoY growth in net sales for the quarter ended March 2014. For full year, the sales have remained flat. While the economy continues to report sub-5% growth levels, the overall cement demand remained lower for major part of FY14. That said, start 2014, the cement volumes are looking up with the hopes of revival with change in guards at the Centre. The white cement and putty sales volume was up by 12% driven by production in Katni.

  • Operating profits decreased by 4.7% YoY owing to subdued cement price realisation. The prices have remained under pressure during FY14. On the cost front, all major cost heads, witnessed inflationary pressures. The energy costs increased by 4% YoY on account of increase in petcoke prices. The raw material expenses too increased by 4% YoY, due to increase in transportation cost caused by higher diesel prices The company's operating margins declined from 22.2% in 4QFY13 to 19.6% in 4QFY14.

  • The other income (including other operating income) grew by mere 1.3% YoY during the quarter. Depreciation charges and interest costs increased by 13.2% YoY and 54.7% YoY respectively.

  • At the bottomline level, net profits increased by 15.4% YoY, but declined by 19.2% YoY for the full year FY14. As a result, the net profit margins declined from 13.3% in FY13 to 10.7% in FY14.

  • The Company commissioned grinding capacity of 1.45 Mn. TPA at Malkhed, Karnataka. It has also Commissioned 30 MW Thermal Power plant at Rawan, Chattissgarh and 6.5 MW Waste Heat Recovery System at Awarpur, Maharashtra. Also, the merger of the Gujarat Cement Unit of Jaypee Cement with UltraTech has been approved by High Courts and is underway.
What to expect?
Ultratech Cement has been the victim of the adverse macro environment that has impacted the cement industry per se. Moreover, the demand has been hampered largely on account of slowdown in construction activities, stalled government spending and decline in capex spending.

Given the sluggishness in the economy and persistent inflationary pressures, we expect growth and profitability to be subdued during the current financial year. At the current price of Rs 2,771 the stock is trading at 35.4 times its trailing twelve month standalone 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.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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