UltraTech's volumes disappointment a blip

Operating performance beats Street expectations; net profit up 15% at Rs 891 cr

UltraTech's performance for the quarter ending June disappointed the street, mainly on volume front. With its pan India peer, ACC reporting double-digit volume growth a day ago, flat volumes by UltraTech weighed on street's sentiment. The street was expecting a 3-5 per cent increase in volumes. Analysts at ICICI Securities, for instance, had estimated volumes at 13.9 million tonnes (MT) whereas actual came at 13.2 MT they said. Analysts at Motilal Oswal Securities, too, had expected cement volumes to grow 4 per cent year-on-year led by growth in North and East markets.

With flat volumes for the quarter, net sales at Rs 6,533 crore for the standalone entity (domestic operations, excluding Star Cement UAE) grew just 5.7 per cent year-on-year and were well short of Bloomberg consensus estimate of Rs 6,840 crore.

However, the performance in terms of profitability was good even as costs increased. The Ebitda at Rs 1,597 crore grew by 12.4 per cent year-on-year and was better than Rs 1,489 crore indicated by consensus estimates. Even as power and fuel costs expectedly surged 32 per cent year-on-year due to surge in pet coke prices in last one year, the company's prudence on operational efficiencies paid off. UltraTech thus reported EBITDA/tonne Rs 1,182/tonne (up of 9.7 per cent year-on-year) as per ICICI Securities, better than their estimate of Rs 1,100. Though ACC's volume growth was better than UltraTech, the latter commands much better profitability as ACC had seen per tonne Ebitda increase 8.6 per cent to Rs 736 in June quarter.

Improving cement prices across regions (post price hikes in April) also helped UltraTech offset the absence of volume growth in June quarter. Better prices and margins, together, saw net profit come in at Rs 891 crore, up 15 per cent year-on-year, significantly better than street expectations of Rs 814 crore.

Meanwhile, going ahead, analysts expect volume growth to improve led by strong demand post monsoons. Further, UltraTech's total capacity now stands at 93 MT post completion of acquisition of Jaiprakash Associates' 21.2 MT capacities. The acquisition will increase UltraTech's geographical presence and enable market share gains in Madhya Pradesh, Uttar Pradesh, Himachal Pradesh, coastal Andhra cluster, etc. The profitability ramp-up of acquired capacities will however take time as analysts at JM Financial expect the acquired Jaiprakash capacities to generate an EBITDA/tonne of Rs 700, Rs 890 and Rs 1,250 in FY18, FY19 and FY20, respectively and transaction to be EPS accretive by FY20. Besides, they add, that UltraTech planned 75.8 MT per annum, in addition to its existing capacities, which gives significant volume visibility for the next 10 years.

So, even as volumes disappointed, UltraTech's stock price declined by just 0.74 per cent to close at Rs 4,315.05 on Tuesday, versus a 1.1 per cent fall in BSE Sensex.