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UltraTech Cem: Sales up, but profit down
Jul 26, 2014 | Updated on Aug 1, 2014

UltraTech Cement has announced its consolidated financial results for the first quarter of the financial year 2014-15 (1QFY15). During the quarter, the company's sales increased by 13.6% YoY, while net profit declined by 5.9% YoY. Here is our analysis of the results:

Performance summary
  • On a consolidated basis, sales rise by 13.6% YoY during the quarter.
  • Operating profits decline by 5% YoY as operating margins decline from 20.7% in 1QFY14 to 17.3% in 1QFY15.
  • Other income increases by 46.3% YoY during the quarter.
  • Depreciation charges and interest expenses increase by 3.4% YoY and 44.1% YoY, respectively.
  • Net profit (after minority interest) declines by 5.9% YoY during the quarter; net margins decline from 12.6% in 1QFY14 to 10.5% in 1QFY15.

Consolidated financial performance snapshot
(Rs m) 1QFY14 1QFY15 Change
Sales 52,718 59,886 13.6%
Expenditure 41,810 49,518 18.4%
Operating profit (EBDITA) 10,909 10,368 -5.0%
Operating profit margin (%) 20.7% 17.3%  
Other income 1,769 2,587 46.3%
Depreciation 2,723 2,817 3.4%
Interest  762 1,098 44.1%
Profit before tax 9,192 9,041 -1.6%
Tax 2,506 2,760 10.1%
Effective tax rate 27.3% 30.5%  
Profit after tax 6,686 6,281 -6.1%
Minority interest 24 12 -51.3%
Net profit after minority interest 6,662 6,269 -5.9%
Net profit margin (%) 12.6% 10.5%  
No. of shares (m) 274.2 274.4  
Diluted earnings per share (Rs)*   79.0  
P/E ratio (x)*   31.4  
*trailing twelve-month earnings

What has driven the performance in 1QFY15
  • UltraTech Cement reported 13.6% YoY growth in consolidated net sales for the quarter ended June 2014. Combined domestic cement and clinker sales increased by 16.1% YoY to 11.7 million tonnes during 1QFY15 as against 10.08 million tonnes in 1QFY14. White cement and wall care putty sales volume was up by 2.8% YoY. It must be noted that the figures for the quarter include those of the Gujarat Units of Jaypee Cement Corporation Limited from 12th June, 2014. As such, the financial performance of the June 2014 quarter is not strictly comparable with the corresponding quarter of the previous financial year.

  • Cement prices continued to remain under pressure and at the same time, higher prices of petcoke and input materials escalated costs. Operating profits decreased by 5% YoY The company's operating margins declined from 20.7% in 1QFY14 to 17.3% in 1QFY15.

    Operating Cost break-up
    (Rs m) 1QFY14 1QFY15 Change
    Cost of raw materials 7,906 9,095  
    Change in inventory 316   9  
    Purchases of stock-in-trade 694 1,069  
    Total Raw Materials 8,916 10,173 14.1%
    % of net sales 16.9% 17.0%  
    Employee expenses 2,701 2,979 10.3%
    % of net sales 5.1% 5.0%  
    Power & fuel 10,699 12,914 20.7%
    % of net sales 20.3% 21.6%  
    Freight & forwarding expenses 11,049 13,331 20.6%
    % of net sales 21.0% 22.3%  
    Other expenses 8,444 10,122 19.9%
    % of net sales 16.0% 16.9%  
    Total operating expenses 41,810 49,518 18.4%
    % of net sales 79.3% 82.7%  

  • The other income (including other operating income) grew by 46.3% YoY during the quarter.

  • Depreciation charges increased by 3.4% YoY. It must be noted that the company revised the depreciation rate on certain fixed assets during the quarter. Finance costs increased by 44.1% YoY during 1QFY15.

  • At the bottomline level, net profits decreased by 5.9% YoY. The net profit margin declined from 12.6% in 1QFY14 to 10.5% in 1QFY15.
What to expect?

During the quarter ended June 2014, UltraTech Cement completed the acquisition of the Gujarat units of Jaypee Cement Corporation Ltd. This includes an integrated unit at Sewagram and a grinding Unit at Wanakbori with a combined capacity of 4.8 million tonnes per annum. With this acquisition, UltraTech's domestic cement capacity now stands at 58.8 million tonnes per annum.

The company's expansion projects are progressing as per schedule. During the June quarter, the company commissioned a 25 MW thermal power plant at Rajashree Cement, Karnataka and a 6.5 MW Waste Heat Recovery System (WHRS) at Awarpur, Maharashtra. With this the total power capacity of the Company (including WHRS) stands at 709 MW. This capacity caters to around 80% of the company's power requirement.

While macro challenges in the form of slow construction activity and high inflation continue to persist, the new business-friendly government's focus on housing and infrastructure development should strengthen the demand momentum in the coming times. At the current prices of Rs 2,476, the stock is trading at 31.4 times its trailing twelve month consolidated earnings. We are currently in the process of updating and revising our estimates for the company. We shall share our latest view and target price for the stock soon.

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