Cost Optimisation Measures Help UltraTech Cement Tide Over Trying Times
UltraTech Cement Ltd. reported a net profit of Rs 563.42 crore for the quarter-ended December.
UltraTech Cement Ltd., the country’s largest cement maker, reported a 6.6 percent increase in standalone net profit to Rs 563.42 crore for the quarter-ended December, surpassing analysts’ estimates.
The cement maker had posted a profit of Rs 527.97 crore during the same period last year. A Bloomberg poll of analysts had forecast net profit at Rs 476.89 crore.
The company reported standalone net sales of Rs 5,540.13 crore for the third quarter of the current fiscal, compared to Rs 5,651.98 crore during the year ago period. Realization per tonne stood at Rs 5,031, up 0.24 percent over last year. This is the second consecutive quarter where the Aditya Birla Group company has surpassed expectations for both topline and bottomline growth.
Volume Growth Slows Marginally
Demonetisation had some impact on domestic volume growth in the third quarter. At 11.01 metric tonnes (MT), volume of sales was 4 percent higher than 10.55 MT in the previous quarter, but 2 percent lower than 11.26 MT in the corresponding quarter last year.
Weak demand was seen across the housing and commercial segments, said the company in a press release. It, however, added that rural housing demand is likely to improve with the normalisation of cash circulation.
Continuing government spending on infrastructure, development of smart cities, interest rate cuts supported by interest subsidy schemes for housing will be the key demand drivers.UltraTech Press Release
Improved Operational Performance
Earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 0.14 percent year-on-year to Rs 1,113.46 crore. But, EBITDA/tonne rose by 2.11 percent to Rs 1,073. Margins expanded by 40 basis points to 19.85 percent during the December quarter.
The improvement in margins is mainly on account of a sharp reduction in power and fuel costs by 10 percent year on year to Rs 968.85 crore in December quarter.
Board Approves New Cement Plant
The company’s board approved its plans to set up a 3.5 million tonnes per year integrated cement plant at Dhar, Madhya Pradesh. The plant will be built at a total cost of Rs 2,600 crore, the company said. Commercial production from the new unit is expected to commence by the fourth quarter of fiscal year 2018-19.
UltraTech hopes to cater to the markets of south-west Madhya Pradesh, where the company is not a significant player, through this plant.
With this expansion and the acquisition of the cement plants of Jaiprakash Associates, the company’s cement capacity will stand augmented to 95 mtpa including its overseas operations.UltraTech Press Release
To Appeal Against CCI’s Penalty Order
Commenting on the Competition Commission of India (CCI)’s decision to impose a penalty of Rs 68.3 crore, the company said it will appeal against the order before COMPAT as it believes it has a “good case”.
On January 19, CCI imposed an aggregate penalty of Rs 206 crore on seven cement companies for trying to rig bids for Haryana government contracts in August 2012. The seven companies are Shree Cement Ltd., UltraTech Cement, Jaiprakash Associates Ltd., JK Cement Ltd., Ambuja Cements Ltd., ACC Ltd., and JK Lakshmi Cement Ltd.
The penalty on cement makers has been calculated at 0.3 percent of their average turnover over the last three financial years, the CCI order said.
Key Highlights From Conference Call
- Total volume (domestic plus exports) stands at 11.73 MT for the quarter against 11.80 MT in the corresponding quarter of the previous fiscal year. Domestic volume stood at 11.01 MT while exports volume stood at 0.72 MT.
- Volumes are expected to face a bit of pressure in the Northern market because of elections, while that in South and East will remain strong. Volumes in the West are expected to pick up, especially in the Gujarat market.
- Average pet-coke consumption price stood at $78-80, and is expected to go up by $5 in the next quarter.
- Pet-coke utilisation went up to 78 percent as compared to 73 percent in the corresponding quarter of the previous year. Utilisation of imported coal and indigenous fuel stood at 19 percent versus 24 percent last year.
- 70 percent of demand continues to be driven by retail segment while 30 percent is from the institutional segment.
- Revenue from ready-mix concrete stood at Rs 475 crore while revenue from white cement stood at Rs 440 crore.
- Average realisation for the month of December was down 4 year-on-year.
- The company used alternate source of energy to control costs. This includes purchase of superior quality limestone and gypsum.
- The company has spent Rs 800-850 crore of capex in the first nine months of this fiscal and is expected to spend Rs 2,600 crore towards green field expansion over the next two fiscal years.
- Another Rs 2,000 crore would be spent on UltraTech’s old plants over the next two years, while Rs 700-800 crore has been earmarked for the assets acquired from Jaypee Group. (UltraTech acquired Jaypee’s cement operations with total capacity of 17.2 million tonnes per annum in July 2016.)
- Capacity utilisation of assets acquired from Jaypee group stands at 30 percent present versus 50 percent a year ago.
- Manufacturing costs and logistic costs will be optimised if demand doesn’t pick up going forward.