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UltraTech: Better prices drive growth

Oct 22, 2012

UltraTech Cement has announced its standalone financial results for the quarter ended September 2012. During the quarter, the company reported a rise of 20% YoY and 97% YoY in sales and net profits respectively. Here is our analysis of the results:

Performance summary
  • On a standalone basis, sales grow by 20% YoY during the quarter owing to higher cement realisations.
  • Operating profits grew by 73% YoY on account of moderation in operating costs.
  • While other income decreases by 32% YoY, interest costs dip by 9% YoY.
  • Net profits nearly double during the quarter; net margins improve from 7.1% in 2QFY12 to 11.7% in 2QFY13.

Standalone financial performance snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Sales 39,077 46,996 20.3% 82,592 97,715 18.3%
Expenditure 33,240 36,922 11.1% 64,873 74,724 15.2%
Operating profit (EBDITA) 5,836 10,074 72.6% 17,719 22,991 29.8%
Operating profit margin (%) 14.9% 21.4%   21.5% 23.5%  
Other income 1,003 685 -31.7% 1,644 1,533 -6.7%
Depreciation 2,228 2,325 4.4% 4,457 4,606 3.3%
Interest 660 600 -9.1% 1,372 1,098 -20.0%
Profit before tax 3,951 7,834 98.3% 13,534 18,821 39.1%
Tax 1,162 2,334 100.8% 3,914 5,537 41.5%
Profit after tax/(loss) 2,789 5,500 97.2% 9,620 13,284 38.1%
Net profit margin (%) 7.1% 11.7%   11.6% 13.6%  
No. of shares (m)       74.1 274.1  
Diluted earnings per share (Rs)*         102.6  
P/E ratio (x)*         19.5  

What has driven performance in 2QFY13?
  • UltraTech Cement reported 20.3% YoY rise in net sales for the quarter ended September 2012. The growth was driven by higher cement realisations. Volume sales grew only marginally by 1.3% YoY from 8.94 million tonnes (mt) in 2QFY12 to 9.06 mt in 2QFY13.

  • Operating profits shot up by 72.6% YoY during the quarter as most major costs heads witnessed a decline. Total raw material costs (including change in inventories and purchase of stock-in-trade), freight and forwarding expenses, and power and fuel costs decreased by 3.3% YoY, 1.8% YoY and 1.7% YoY respectively (as a percentage of sales). It must be noted that these three cost heads together comprise about 72% of the company's total operating costs. The company's operating margins improved from 14.9% in 2QFY12 to 21.4% in 2QFY13.

  • The other income declined by a 31.7% YoY during the quarter. Interest costs dipped by 9.1%.

  • At the bottomline level, net profits increased by 97.2% YoY. Net profit margins improved from 7.1% in 2QFY12 to 11.7% in 2QFY13.

  • During the quarter, the company acquired the entire equity stake of Gotan Limestone Khanij Udyog Pvt Ltd (GKU). Consequently, GKU has become a wholly owned subsidiary of UltraTech.

  • The company's expansion plans are on track and are expected to be commissioned by 1QFY14. After expansion, the company's capacity will increase by 20% to 62 mt.

What to expect?
While cement demand is expected to grow at about 8% per annum, the surplus capacity scenario in the cement industry is likely to continue over the next 3 years.

At the current prices of Rs 2,000 the stock is trading at 19.5 times its trailing twelve month earnings. We believe that at the current level, the stock is trading significantly above our valuation band. As such, we recommend a 'Sell' on the stock from a 2-3 year perspective.

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