UltraTech posts strong operational results

Realisations are soft and 'other income' is lower but operating profits are better

UltraTech’s bottom line performance for the September quarter disappointed the Street. At Rs 394 crore, the stand-alone profit fell short of Bloomberg consensus estimates of Rs 432.5 crore. The stock lost 1.76 per cent on the exchanges to close at Rs 2,903 on Monday. However, lower-than-expected profit has largely been due to lower ‘other income’. The company's performance on the operating and volume fronts has been strong. Cement volumes at 11.5 million tonnes grew 7.6 per cent year-on-year (y-o-y) and were better than analysts' estimates. This helped the company post sales at Rs 5,621 crore, which were higher than the estimated consensus number of Rs 5,544 crore, despite some softness in realisations on the back of subdued cement prices.

The company has been wise in controlling costs. The increased utilisation of pet coke is one such initiative, which has helped reduce power and fuel costs. Thus, despite realisation at Rs 4,936 a tonne (by analysts' estimates), 1.9 per cent lower y-o-y, the Ebitda (earnings before interest, tax, depreciation, and amortization) was higher. The Ebitda, at Rs 989 crore, grew 19.2 per cent y-o-y, and margins at 17.4 per cent jumped 200 basis points over 15.4 per cent in the year-ago quarter.

Ravi Shenoy, vice-president, mid-caps, Motilal Oswal Securities, says lower costs led to a blended Ebitda per tonne at Rs 847, up seven per cent y-o-y, compared to an estimated Rs 805, as significant cost savings were seen in fuel and freight costs. Increase in material costs was due to the provision for the district mineral fund.

  As the company performance remains strong, the demand and price recovery will hold key to upside in the stock price. Cement firms have raised prices at the end of the quarter. Prices have rebounded Rs 70-100 per bag in north India, and Rs 10-15 per bag in select western markets, while dropping Rs 10-20 per bag in south India in September, says Religare. But, sustaining prices will be crucial. Analysts remain hopeful of demand recovery, pushed by infrastructure spending by the government. However, investors need to keep a watch on demand and prices in the near term. Nevertheless, for the longer term, UltraTech remains a top pick — 65 per cent of analysts tracking the stock have a buy suggestion. UltraTech will be a leading beneficiary of any rebound in cement demand. UltraTech remains a preferred long-term buy in the cement space, says Motilal Oswal Securities, that has a target price of Rs 3,612 for the stock.