Dismal volumes, high costs major overhangs in Q2 performance of UltraTech

Weak demand and monsoon impacted volumes, while net profit missed estimates due to higher expenses

The 2 per cent year-on-year (YoY) decline in UltraTech’s reported sales volume at 17.77 million tonnes (mt) in the domestic operations for the September quarter (Q2) was disappointing, as analysts — after factoring in consolidation of cement capacities acquired from Century Textiles — were expecting a growth of 4 per cent to 19 mt.

The improvement in realisations on a YoY basis, however, continued to provide support. The price of a 50 kg cement bag in the country averaged at Rs 354 during Q2, better than the Rs 331 in the year-ago quarter. Revenue at Rs 9,621 crore grew 4 per cent YoY and came better than Bloomberg’s consensus estimates of Rs 8,836 crore.

With average cement price per 50 kg bag in Q2 lower that the June quarter’s Rs 367, UltraTech’s sequential performance was bound to be soft. Revenue was 15.6 per cent lower sequentially.

Besides volumes, operating performance was also below expectations, which analysts owe to higher expenses. Maintenance costs and low-capacity utilisation, especially after the consolidation of Century Cement capacities, contributed to the same. Though up 29 per cent YoY, earnings before interest, tax, depreciation, and amortisation (Ebitda) came in at Rs 1,810 crore and missed consensus estimates of Rs 1,923 crore.

Per tonne Ebitda at Rs 1,020 was higher than Rs 776 in the year-ago quarter, but much lower than Rs 1,364 in the April-June 2019 period.

Profit before tax at Rs 890 crore was up 69 per cent YoY in Q2. While net profit at Rs 612 crore also grew 65 per cent YoY, it was down by more than half sequentially, from Rs 1,255 crore in Q1, and lower than analysts’ estimates of Rs 717 crore.

Binod Modi at Reliance Securities said dismal volumes and high costs were the major overhangs in Q2 showing.

Recovery in cement demand and prices after the festive season will hold key to the company’s prospects, even as declining energy and logistics costs would lend a helping hand. While pick-up in government spending on infrastructure is awaited, good monsoon should lift rural demand for cement. For UltraTech, the speedy turnaround of assets acquired from Century will also be watched.

UltraTech’s total domestic capacity now stands at 109.4 mt, as it plans to set up 3.4 mt of new capacities in the East. On the other hand, plans to divest non-core assets in China, the United Arab Emirates, etc should help pare debt.