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UltraTech: Surging Petcoke Prices a Risk to Future Profitability - Views on News from Equitymaster
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  • Oct 18, 2016 - UltraTech: Surging Petcoke Prices a Risk to Future Profitability

UltraTech: Surging Petcoke Prices a Risk to Future Profitability
Oct 18, 2016

UltraTech Cement has announced its financial results for the second quarter of the financial year 2016-17 (2QFY17). During the quarter, while the company's consolidated gross sales declined by 2.5% YoY, net profit increased by 25.3% YoY. Here is our analysis of the results:

Performance summary
  • On a consolidated basis, gross sales declined by 2.5% YoY during the quarter owing to sluggish demand and lower cement realisations.
  • The company's domestic capacity utilisation rate stood at 64%.
  • Domestic sales volume increased marginally by about 1% YoY, while average cement realisations declined by about 3% YoY.
  • A key reason for the poor cement offtake was the widespread monsoon rain. Sand shortages also impacted demand in Uttar Pradesh and West Bengal. In Bihar, cement demand was affected by the flood. In the Delhi region, property prices have been correcting. And as such, the demand in the region has been sluggish. It must be noted that there is surplus inventory in urban housing, especially in tier I cities, resulting in slowdown in housing construction and thereby impacting cement demand. Some states that witnessed positive rural demand trends include Punjab, Haryana, Odisha, Chhattisgarh, Madhya Pradesh, etc.
  • While cement prices improved over the preceding quarter, on a year-on-year basis, cement prices were still lower. Operating profits increased by 16.8% YoY; operating margins improved due to lower operating costs.
  • Depreciation charges decreased by 5.6% YoY, finance costs increased marginally by 1.6% YoY.
  • Consolidated net profit increased by 25.3% YoY during the quarter.
  • Net profit margins during the quarter expanded from 7.4% in 2QFY16 to 9.5% in 2QFY17.
  • During the first half of the financial year 2016-17 (1HFY17), while the topline rose marginally by 1% YoY, net profit rose 27.4% YoY.

    Consolidated Financial Performance Snapshot
    (Rs m) 2QFY16 2QFY17 Change 1HFY16 1HFY17 Change
    Gross Sales 66,076 64,456 -2.5% 137,047 138,461 1.0%
    Expenditure 56,186 52,900 -5.8% 115,744 112,669 -2.7%
    Operating profit (EBITDA) 9,891 11,556 16.8% 21,303 25,791 21.1%
    Operating profit margin (%) 15.0% 17.9% 15.5% 18.6%
    Other income 1,965 2,219 12.9% 3,562 4,248 19.3%
    Depreciation 3,538 3,342 -5.6% 6,571 6,570 0.0%
    Finance costs 1,472 1,496 1.6% 2,969 3,294 10.9%
    Profit before tax 6,845 8,938 30.6% 15,325 20,176 31.7%
    Tax 1,939 2,801 44.4% 4,382 6,241 42.4%
    Effective tax rate 28.3% 31.3% 28.6% 30.9%
    Profit after tax 4,906 6,136 25.1% 10,943 13,935 27.3%
    Minority Interest 2 -7 NA 0 -9 NA
    Net profit 4,904 6,143 25.3% 10,943 13,944 27.4%
    Net profit margin (%) 7.4% 9.5% 8.0% 10.1%
    No. of shares (m) 274.4
    Diluted earnings per share (Rs)* 94.3
    P/E ratio (x)* 42.6

    *trailing twelve-month earnings

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