While volumes should remain strong, prices could taper off as supply exceeds demand
As expected, cement major UltraTech Cement has turned in an excellent set of numbers for the June 2009 quarter with revenues up a smart 31 per cent to Rs 1,953 crore. Revenues were driven by a huge 24 per cent jump in volumes (domestic volumes were up 17 per cent) and better realisations. The bottom line growth of 58 per cent to Rs 418 crore has been driven by a better operating profit margin (OPM), which is up nearly 700 basis points year-on-year to 36.7 per cent. While the increase in OPM has been the result of rise in revenues, a slightly smaller power and fuel bill and a small drop in other expenditure have helped.
Having completed its expansion programme, Ultra Tech’s cement capacity is now 23.1 million tonnes. As a consequence, the company’s volumes may grow about 10 per cent this year and beat the industry average, expected to be 9 per cent. However, UltraTech has a relatively higher exposure to southern and western markets, where prices could come off later in the year. Industry watchers expect a surplus in the market towards the second half of 2009-10 — estimated at 40 million tonnes — and believe that prices, which have held ground fairly well so far, could drop by about 10 per cent. As such, UltraTech’s revenues for the current year are expected to be in the region of Rs 7,000 crore over Rs 6,564 crore posted last year.
In 2008-09, the company’s OPM contracted due to cost pressures — UltraTech imports a large part of its coal requirements — despite it seeing better realisations. Energy costs will be lower this year because the company will use more captive power, which is cheaper, and prices of coal have fallen. That should ensure operating profit growth of 9-10 per cent. At Rs 776, the stock trades at just under 10 times its 2009-10 estimated earnings.
