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UltraTech: Volumes drive growth - Views on News from Equitymaster
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UltraTech: Volumes drive growth
Jul 21, 2009

Performance summary
  • In 1QFY10, UltraTech has reported nearly 31% YoY growth in topline backed by higher volumes.
  • EBITDA margins expand by 6.9% as costs grow at a much slower rate as compared to topline.
  • Variable costs decline by 7% YoY because of captive power generation and softening of coal prices.
  • Impressive growth at the operating level boils down to bottom-line.
  • Profit before tax (PBT) grows by whopping 65.8% YoY, while net profits report a growth of 57.6% YoY. Growth in bottomline is a tad lower as compared to PBT owing to higher tax outgo.

Financial performance snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 15,079 19,689 30.6%
Expenditure 10,501 12,360 17.7%
Operating profit (EBITDA) 4,578 7,328 60.1%
EBITDA margin 30.4% 37.2%  
Other income 147 181 23.7%
Interest 247 330 33.4%
Depreciation 711 936 31.6%
Profit before tax/(loss) 3,766 6,244 65.8%
Tax 1,116 2,067 85.2%
Profit after tax/(loss) 2,650 4,178 57.6%
Net margin 17.6% 21.2%  
No of shares (m) 124 124  
Diluted EPS (Rs)*   90.8  
P/E (times)   8.5  
*trailing twelve month earnings

What has driven performance in 1QFY10?
  • During 1QFY10, UltraTech Cements reported nearly 31% YoY growth in the topline on account of sustained demand for the commodity. The same has been the result of government initiatives to boost rural development, infrastructure and housing. The company has witnessed 18% YoY growth in its domestic volumes, while exports were higher by 91% YoY. Here, one must note that the government banned cement exports in April last year to control inflation. The ban was lifted later during the year. So, in the same quarter last year, export volumes were impacted. As the company has not reported export revenues separately, it would be difficult to comment specifically about the growth in realisations for the company. Overall, average realisations in the domestic markets are firm but are under pressure in overseas markets. Thus, the growth has been driven largely by volumes.

    Cost break up
    (as a % of sales) 1QFY09 1QFY10
    Consumption of raw materials 7.0% 12.4%
    Staff cost 3.1% 3.0%
    Power and fuel 25.6% 19.5%
    Freight & handling charges 16.9% 15.5%
    Other expenditure 17.0% 12.5%

  • Operating profits reported a whopping growth of 60% YoY as cost grew at a slower pace as compared to the topline. The company had set up captive power plants to contain costs. This captive power generation and softening of coal prices led to 7% YoY fall in variable costs. Barring cost of consumption of raw materials, all the other cost heads (as a percentage of sales) have declined. The higher cost of raw materials is the result of increased purchases of traded goods.

  • Lower than proportionate growth in depreciation and interest expenses enabled PBT to grow at a higher rate of 66% as compared to operating profits. At the net profit level, growth came in at 57.6% YoY as tax charges were higher by 85% YoY.

What to expect?
With the commissioning of its spilt grinding unit in Karnataka and cement mills in Andhra Pradesh Cement Works, the company has augmented its capacity to 23.1 MTPA. Its 236 MW of captive power plants are fully operational and cater to 80% of the company’s power requirements. The board has approved additional capex of Rs 6 bn and with this, the total capital outlay for the company would be Rs 20 bn. The same will be spent over the next two years to set up 25MW of thermal power plant, an additional grinding facility, an evacuation facility at its unit in Gujarat and waste heat recovery system across units for generating power out of waste gases. These moves are beneficial from a long term perspective as, it will enable the company to keep a check on rising costs of operation. At the same time, upcoming capacities are likely to pressurize realisations and hence, profitability in the medium term.

At the current price of Rs 772, the stock of UltraTech Cements is trading at an EV/tonne of around Rs 4,000 based on our FY12 estimates. We maintain our view on the stock and shall soon update our research report on the company.

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Feb 20, 2018 (Close)


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