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UltraTech Cem: Better realisations aid profits - Views on News from Equitymaster

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UltraTech Cem: Better realisations aid profits
Aug 1, 2011

UltraTech Cement has announced its financial results for the quarter ended June 2011. On a like-for-like comparison basis, the company's sales and net profits have reported a rise of 9% YoY and 22% YoY respectively. Here is our analysis of the results.

Performance summary
  • Combined domestic cement and clinker sales volume declines by 2% YoY during the quarter.
  • On a like-for-like (LFL) comparison basis, the company's topline increases by 9% YoY during the quarter ended June 2011.
  • Better realisations lead to a 22% rise in net profits during 1QFY12. Net margins improve from 14% in 1QFY11 to 15.6% in 1QFY12.


(Rs m) 1QFY11* 1QFY12 Change
Sales 39,898 43,654 9.4%
Expenditure 29,900 31,773 6.3%
Operating profit (EBDITA) 9,998 11,881 18.8%
Operating profit margin (%) 25.1% 27.2%  
Other income  857  658 -23.2%
Depreciation 2,132 2,230 4.6%
Interest  787  726 -7.7%
Profit before tax 7,936 9,583 20.8%
Tax 2,359 2,752 16.7%
Profit after tax/(loss) 5,577 6,831 22.5%
Net profit margin (%) 14.0% 15.6%  
No. of shares (m)   274.0  
Diluted earnings per share (Rs)*   55.8  
P/E ratio (x)*   18.4  
# The results for 1QFY11 have been recasted to include Samruddhi Cement Ltd’s performance for a like-for-like comparison.
*On a trailing twelve month basis

What has driven performance in 1QFY12?
  • UltraTech Cement reported a 9.4% YoY rise in net sales for the quarter ended June 2011. This was mainly on the back of improvement in cement realisations. The combined cement and clinker sales volume registered a marginal decline of 1.6% YoY as cement demand remained subdued.

  • The company's operating expenditure increased at a slower pace as compared to the topline due to lower consumption of raw materials and traded goods. However, power and fuel costs shot up by 1.4% YoY (as a percentage of net sales) due to a 30% hike in both domestic as well as international coal prices. As a result, operating profits increased by 18.8% YoY during the quarter. Operating margins improved from 25.1% in 1QFY11 to 27.2% in 1QFY12.

  • Overall improvement in operating performance coupled with decline in interest costs helped the company increase its bottomline by 22.5% YoY. Net profit margins improved from 14% in 1QFY11 to 15.6% in 1QFY12.

  • 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).

What to expect?
The cement industry continues to be in the throes of excess capacity and the scenario is likely to persist for another 2-3 years. As such, cement price realisations will remain under pressure. Additionally, high commodity and input prices will keep margins low.

At the current prices of Rs 1028, the stock is trading at 20.5 times its trailing twelve month earnings, making it expensively valued. We maintain our cautious view on the stock.

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