Thanks to better realisations, the company could withstand higher fuel prices
Improving realisations helped UltraTech Cement post a robust 21.6 per cent year-on-year revenue growth in the September quarter. From Rs 228 for a 50-kg bag in the September quarter last year, the average cement price in the country rose to Rs 247 in the quarter this year. UltraTech, which has a good presence in South India, benefited further as prices there improved from Rs 210 a bag to Rs 278 a bag over the same period. Grey cement realisations are estimated to have increased to Rs 3,523 a tonne in the September quarter, compared to Rs 2,940 a tonne in the same period a year ago.
The full impact of the rise in diesel prices in June and the 30 per cent coal price rise in March was fully reflected in the last quarter. As a result, power, fuel and even freight costs increased 13 per cent y-o-y. However, with realisations being significantly higher, UltraTech was able to tide over the cost pressure. Operating profit margin increased 215 basis points to 14.9 per cent.
Going forward, coal remains a cause of concern, with Coal India Limited (CIL) diverting October supplies of e-auctions to the power sector. UltraTech procures 20 per cent of its coal requirements from e-auctions, according to analysts at Emkay Global. If CIL’s e-auctions continue after October, cement companies will have to resort to high-cost imported coal.
Some of the increase seen in coal prices may be absorbed by higher realisations, since cement prices were increased in most parts of the country in anticipation of a rise in construction activities. On an average, cement prices have risen from Rs 249 a bag in September to Rs 262 a bag in October. Analysts believe the benefits to cement players have accrued from price increases through last year. They feel the recent rise would also be sustained as companies maintain production discipline, though growing capacities outpace demand.
Vineet Hetamsaria, head (research), PINC Research, said UltraTech posted a good growth over a weak base and the sequential decline in profitability was a bit disappointing. However, he remained positive on the stock and added that profitability should start improving from the December quarter, thanks to the recent price increases. At Rs 1,120, the stock trades at 14 times FY13 consensus estimates.