UltraTech: Relative Resilience in a Challenging Quarter

UltraTech Cement has announced its financial results for the third quarter of the financial year 2016-17 (3QFY17). During the quarter, while the company's consolidated gross sales declined by 1.4% YoY, net profit increased by 5.1% YoY. Here is our analysis of the results:

Performance summary

• On a consolidated basis, gross sales declined by 1.4% YoY during the quarter owing to adverse impact of demonetisation.
• The company's domestic capacity utilisation rate stood at about 67% during the quarter.
• Cement prices were also weak, while on the other hand, costs started hardening.
• However, the company was able to sail through the tough period quite resiliently.
• Power and fuel expense, a major cost component, declined by 100 basis points from 16.9% of net sales in 3QFY16 to 15.9% of net sales during the quarter.
• As you can see in the table below, while the company's topline was muted, it was able to improve its operating margins during the quarter by about 30 basis points.
• Non-operating expenses were in control. As a result, the consolidated net profit increased by 5.1% YoY during the quarter.
• Net profit margins during the quarter expanded from 8.4% in 3QFY16 to 8.9% in 3QFY17.
• During the nine-month period of the financial year 2016-17 (9MFY17), while the topline growth was flat, net profit rose 19.8% YoY.
  
  

  Consolidated Financial Performance Snapshot

  (Rs m)	3QFY16	3QFY17	Change	9MFY16	9MFY17	Change
  Gross Sales	67,850	66,902	-1.4%	204,897	205,363	0.2%
  Expenditure	56,797	55,787	-1.8%	172,541	168,456	-2.4%
  Operating profit (EBITDA)	11,053	11,116	0.6%	32,356	36,907	14.1%
  Operating profit margin (%)	16.3%	16.6%		15.8%	18.0%
  Other income	1,684	1,683	-0.1%	5,246	5,931	13.0%
  Depreciation	3,412	3,359	-1.5%	9,983	9,929	-0.5%
  Finance costs	1,410	1,438	2.0%	4,379	4,732	8.1%
  Profit before tax	7,916	8,001	1.1%	23,241	28,177	21.2%
  Tax	2,249	2,061	-8.3%	6,631	8,302	25.2%
  Effective tax rate	28.4%	25.8%		28.5%	29.5%
  Profit after tax	5,667	5,939	4.8%	16,610	19,874	19.6%
  Minority Interest	11	-7	NA	11	-16	NA
  Net profit	5,656	5,946	5.1%	16,599	19,890	19.8%
  Net profit margin (%)	8.4%	8.9%		8.1%	9.7%
  No. of shares (m)					274.5
  Diluted earnings per share (Rs)*					95.3
  P/E ratio (x)*					39.2

  *trailing twelve-month earnings