Outlook healthy for UltraTech amidst higher competition, revenue grows 8%

UltraTech Cement’s third quarter of financial year 2023-24 (Q3FY24) performance saw a combination of 6 per cent year-on-year (Y-o-Y) volume growth and 8 per cent revenue growth coupled with better realisations per tonne. The earnings before interest, taxes, depreciation, and amortisation (Ebitda) stood at Rs 3,250 crore and Ebitda per tonne was Rs 1,191. Profit after tax (PAT) was reported at Rs 1,780 crore. Other income dipped and interest costs rose. The Q3 results were 2 per cent below Bloomberg consensus.

The management estimates that capacity utilisation will improve to 80-85 per cent in Q4 from 77 per cent in Q3. Demand has recovered, except in the North. Lower costs drove higher realisations. Fuel costs should drop by another 7-8 per cent over the next six months. Planned capex for FY24 and FY25 is of the order of Rs 9,000 crore for each fiscal.

The company has a leadership position and a sound balance sheet. It will not need to leverage the balance sheet to fund any expansion. Costs may have reduced structurally alongside cyclical reductions in raw material, energy and transport costs.  

The consolidated revenue, Ebitda, and PAT stood at Rs 16,700 crore, Rs 3,250 crore, and Rs 1,780 crore respectively with Y-o-Y growth of 8 per cent, 39 per cent, and 68 per cent respectively. Consolidated sales volume grew 6 per cent Y-o-Y to 27.3 million tonnes (mt). Blended realisation across cement categories was up 2 per cent Y-o-Y, while operating expenses per tonne was down 3 per cent Y-o-Y due to a 9 per cent decline in variable costs and a small drop in freight charges. The Ebitda per tonne was up 32 per cent Y-o-Y and the Ebitda margin improved 4.4 per cent Y-o-Y to 19 per cent.

In the first three quarters of FY24, revenue was up 13 per cent Y-o-Y, primarily due to an increase in volumes. The Ebitda grew 21 per cent Y-o-Y, while operating profit margin was up 1.2 per cent to 17.5 per cent. Ebitda per tonne grew 7 per cent Y-o-Y to Rs 1,055. Net debt stood at Rs 5,540 crore by December 23, up from Rs 2,700 crore in March 2023. Capex in the first nine months of FY24 stood at Rs 6,920 crore.

The management estimates industry volume growth of 8-9 per cent Y-o-Y in FY24. Cement prices improved in Q3FY24 but a demand slowdown led to a correction in December. Blended fuel consumption cost per tonne stood at $150 versus $162 in Q2FY24. Fuel cost is expected to decline further by 7-8 per cent in the next six months.

In a recent analysts’ presentation, UltraTech unveiled a roadmap for hitting capacity of 180 mt by FY27, implying a compound annual growth rate (CAGR) of 9 per cent over FY23-27. The Phase III of expansion plans will add 22 mt of cement capacity, backed by clinker, at $72/tonne with an estimated IRR (internal rate of return) of 15 per cent. Assuming 80 per cent utilisation, and Rs 1,100 per tonne Ebitda, the post-tax ROCE (return on capital employed) would be around 7 per cent. Management also stated it will apply for CCI approval for acquisition of Kesoram followed by NCLT application and management believes UltraTech could complete the acquisition by April 2024. After the takeover of Kesoram, UltraTech should have 190 mt of cement capacity by FY27. The company is confident it can reach 200 mt capacity organically and it is possible it may overshoot targets.

Q4FY24 may see further price reductions as company fights for market share in a highly competitive environment. Q4FY24 may see Y-o-Y volume growth of 8 per cent. Given moderating costs, Ebitda per tonne may be around Rs 1,184.