Strong show by UltraTech

Despite weak demand and subdued realisations, profitability surprised many

Subdued market sentiments, further hurt by ACC’s dismal performance, got a boost after UltraTech posted its June quarter numbers. Despite weak demand and subdued realisations across the country during the June quarter, UltraTech’s profitability was much better. Both companies are pan-India players but UltraTech’s Ebitda (earnings before, interest, tax, depreciation and amortisation) per tonne of close to Rs 900 was more than double ACC’s Rs 442. Not surprisingly, the stock gained 4.3 per cent to close at Rs 3,354 on Monday.  

UltraTech's cement volumes at 12.14 million tonnes (mt) came almost similar to the 12.18 mt seen in the March’15 quarter, though 3.8 per cent more as compared to the year-ago period.  

On a consolidated basis, the numbers are not comparable, given the amalgamation of Gujarat-based cement assets of the Jaypee group that were acquired by UltraTech. Nevertheless, on a like-to-like basis, the performance is impressive as operating Ebitda at Rs 1,252 crore was marginally lower than the year-ago quarter’s Rs 1,264 crore, and about 10 per cent higher than estimates. The company was able to control costs, especially power and fuel, which at Rs 1,168 crore were lower than the Rs 1,291 crore in the year-ago quarter.

Despite other income falling by half to Rs 100 crore and interest outgo and depreciation rising sharply (up by Rs 59 crore), net profit at Rs 591 crore (versus  Rs 626 crore in the June’14 quarter) was higher than estimates of Rs 585 crore.

Shrenik Gujrathi at Angel Broking said realisations increased by four per cent year-on-year to Rs 5,023 a tonne but was mainly in line with their estimate of Rs 5,039 a tonne. Volumes, however, came lower than his estimate of 12.30 mt.

During the quarter, UltraTech commissioned a 15 Mw waste heat recovery system, taking the total power generation capacity from waste-heat recovery to 48 Mw. The same is planned to rise to 58 Mw. This bodes well for captive power requirements, as efforts are on to make the acquired Jaypee assets in Gujarat more cost-efficient.

All eyes are on the second half of FY16, when cement demand and realisations are expected to rebound. The governments' focus on infrastructure, the housing sector, smart cities, roads, etc, should help push demand, and UltraTech is ready with enhanced capacities to capture it.

The stock, up almost 20 per cent in a month and trading close to $185 a tonne on a replacement cost (FY17) basis, is not cheap.