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UltraTech Cem: Jaypee acquisition aids growth
Oct 27, 2014

UltraTech Cement has announced its financial results for the second quarter of the financial year 2014-15 (2QFY15). 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 standalone basis, sales rise by 19.5% YoY during the quarter.
  • Operating profits grow by 25.7% YoY as operating margins expand from 14.6% in 2QFY14 to 15.4% in 2QFY15.
  • Other income increases by 112.1% YoY during the quarter.
  • Depreciation charges and interest expenses increase by 17.5% YoY and 61.5% YoY respectively.
  • Net profit increases by 55.3% YoY during the quarter; net margins improve from 5.9% in 2QFY14 to 7.6% in 2QFY15.

Standalone financial performance snapshot
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Sales 45,034 53,818 19.5% 94,628 110,313 16.6%
Expenditure 38,437 45,523 18.4% 77,540 91,939 18.6%
Operating profit (EBDITA) 6,597 8,295 25.7% 17,088 18,374 7.5%
Operating profit margin (%) 14.6% 15.4%   18.1% 16.7%  
Other income 574 1,217 112.1% 2,456 3,774 53.7%
Depreciation 2,573 3,024 17.5% 5,093 5,669 11.3%
Interest 888 1,434 61.5% 1,548 2,436 57.4%
Profit before tax 3,711 5,055 36.2% 12,903 14,044 8.8%
Tax 1,070 954 -10.8% 3,536 3,687 4.3%
Effective tax rate 28.8% 18.9%   27.4% 26.3%  
Profit after tax 2,641 4,101 55.3% 9,367 10,356 10.6%
Net profit margin (%) 5.9% 7.6%   9.9% 9.4%  
No. of shares (m)       274.2 274.4  
Diluted earnings per share (Rs)*         81.8  
P/E ratio (x)*         29.9  
*trailing twelve-month earnings

What has driven performance in 2QFY15?
  • UltraTech Cement reported 19.5% YoY growth in standalone net sales for the quarter ended September 2014. Combined domestic cement and clinker sales increased by 12.3% YoY to 10.35 million tonnes during 2QFY15 as against 9.22 million tonnes in 2QFY14. White cement and wall care putty sales volume was up by 2.7% YoY. It must be noted that the figures for the quarter include those of the Gujarat Units of Jaypee Cement Corporation Limited. As such, the financial performance of the September 2014 quarter is not strictly comparable with the corresponding quarter of the previous financial year.

  • Operating margins improved from 14.6% in 2QFY14 to 15.4% in 2QFY15. However, sequentially there has been a 190 basis points drop in margins quarter-on-quarter owing to increase in prices of petcoke, input material and royalty on limestone.

  • The other income (including other operating income) grew by 112.1% YoY during the quarter.

  • Depreciation charges increased by 17.5% YoY. It must be noted that the company revised the depreciation rate on certain fixed assets as per the useful life specified in the Companies Act, 2013. Finance costs increased by 61.5% YoY during 2QFY15.

  • At the bottomline level, net profits increased by 55.3% YoY. The net profit margin expanded from 5.9% in 2QFY14 to 7.6% in 2QFY15.
What to expect?
Higher cement demand and additional volume from the acquired units in Gujarat drove the performance during the quarter. The government's focus on housing and infrastructure development as well as easing commodity prices should augur well for cement demand in India.

UltraTech's on-going capex is progessing as per schedule. The company commissioned a 1.4 million tonne per annum cement mill at Rajashree Cement, Karnataka and a 25 MW thermal power plant at Tadipatri, Andhra Pradesh. With this the company's total cement capacity in India stands at 60.2 million tonnes and the total power capacity (including WHRS) at 733 MW. This fulfills around 80% of the company's power requirement.

At the current stock price level the stock is trading at nearly 30 times its trailing twelve month standalone earnings. At this level, the stock is above the upper valuation band that we assign to it. As such, we continue to maintain a SELL view on the stock.

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