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UltraTech: Topline grows, margins remain muted - Views on News from Equitymaster
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UltraTech: Topline grows, margins remain muted
Jul 20, 2012

UltraTech Cement has announced its standalone financial results for the quarter ended June 2012. During the quarter, the company reported a rise of 17% YoY and 14% YoY in sales and net profits respectively. Here is our analysis of the results

Performance summary
  • On a standalone basis, sales grow by 17% YoY during the quarter owing to higher sales volumes and better cement realisations.
  • Operating profits grew at a lower rate of 9% YoY on account higher energy and raw material costs.
  • Other income increases by 32% YoY, while interest costs dip by 30% YoY.
  • Net profits grow by 14% YoY, net margins decline marginally from 15.7% in 1QFY12 to 15.3% in 1QFY13.

Financial performance snapshot
(Rs m) 1QFY12 1QFY13 Change
Sales 43,515 50,748 16.6%
Expenditure 31,633 37,830 19.6%
Operating profit (EBDITA) 11,883 12,918 8.7%
Operating profit margin (%) 27.3% 25.5%  
Other income 641 849 32.3%
Depreciation 2,230 2,281 2.3%
Interest 712 498 -30.0%
Profit before tax 9,583 10,987 14.7%
Tax 2,752 3,203 16.4%
Profit after tax/(loss) 6,831 7,784 13.9%
Net profit margin (%) 15.7% 15.3%  
No. of shares (m) 274.0 274.1  
Diluted earnings per share (Rs)*   92.7  
P/E ratio (x)*   17.3  

What has driven performance in 1QFY13?
  • UltraTech Cement reported 16.6% YoY rise in net sales for the quarter ended June 2012. The growth was driven by 4.9% increase in sales volumes, while the remaining came on account of improvement in cement realisations.

  • Operating costs shot up by 19.6% YoY during the quarter, higher than the growth in the topline. While total raw material costs (including change in inventories and purchase of stock-in-trade) increased by 3.1% (as a percentage of sales), freight and forwarding expenses rose by 0.6% (as a percentage of sales). The increase in the costs was attributable to the hike in railway freight and also the rise in diesel prices. Despite the fact that international coal prices dropped by about 19%, the company was not able to avail much benefit on account of the 21% slide in the value of the Indian rupee. As such, the company's operating margins contracted from 27.3% in 1QFY12 to 25.5% in 1QFY13.

  • The other income rose by a 32.3% YoY during the quarter. Interest costs dipped by 30% on account of subsidies by State Investment Promotion Scheme (SIPS). This caused the company's profit before tax to rise by 14.7% YoY.

  • At the bottomline level, net profits increased by 13.9% YoY. Net profit margins declined marginally from 15.7% in 1QFY12 to 15.3% in 1QFY13.

What to expect?
UltraTech Cement is one of the 11 Indian cement manufacturing companies who have been penalised by the Competition Commission of India (CCI) for alleged cartelisation. As per the Order, a penalty of Rs 11.8 bn has been imposed on UltraTech. The company believes that it has a good case and plans to appeal against the Order before the Competition Appellate Tribunal. As such, it has made no provision for the same in the accounts.

The company's board has given a sanction for additional capex worth Rs 10 bn. This takes the total capex under implementation to Rs 120 bn.

The surplus capacity scenario in the cement industry is likely to continue over the next 3 years. At the same time, operating cost show hardly any sign of easing.

At the current prices of Rs 1,591, the stock is trading at 17.3 times its trailing twelve month earnings. We maintain our cautious view on the stock from 2-3 years perspective.

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