Why UltraTech Cement Lags Large-Cap Peers Despite Robust Quarterly Profit 
The silhouettes of contractors are seen pouring cement into the base of a condominium under construction. (Photographer: Ben Nelms/Bloomberg)

Why UltraTech Cement Lags Large-Cap Peers Despite Robust Quarterly Profit 

UltraTech Cement Ltd. underperformed its large-cap peers in the three months through March even as its quarterly profit surged threefold and it deferred capex plans amid a national lockdown that was imposed after the Covid-19 outbreak.

Here’s a closer look at how the cement maker stacks up against its peers.

Volume Growth

The cement maker’s volumes fell by 16 percent over the previous year to around 21.4 million tonnes in the March quarter. That drop was the steepest among peers Ambuja Cements Ltd., ACC Ltd. and Shree Cement Ltd.

UltraTech Cement said at a post-earnings call that lower capacity utilisation at its plants in central India and higher exposure to the western region—Mumbai and Ahmedabad markets in particular—weighed on sales.

Capacity utilisation, it said, was the lowest in the central region at less than 60 percent, and ranged between 65 percent and 80 percent in all other regions. Demand has now started picking up for the central region, it said.

Operating Performance

UltraTech Cement’s operational performance fared better than the consensus estimate of analysts tracked by Bloomberg amid falling volumes. Yet, its unitary Ebitda growth was lower than its large-cap peers, according to a BloombergQuint analysis.

That could be because the company is losing market share to smaller firms as it focuses on paring debt, according to Prateek Kumar, analyst at Antique Stock Broking.

UltraTech Cement aims to achieve a debt-to-Ebitda ratio of 1.1 times for the year ending March 2021 from 1.55 times in the previous year.

Strengthening Balance Sheet

UltraTech Cement’s net debt fell 23.7 percent year-on-year to Rs 16,860 crore, the company said, attributing it to improvement in its working capital cycle. The reduction was 9.5 percent sequentially.

The company said it plans to increase operational efficiency and achieve higher realisation from the sale of its non-core assets to achieve return on equity in the near future.

Deferred Capex Plans

The cement maker has earmarked a lower capex of Rs 1,000 crore for the ongoing financial year compared with Rs 1,604 crore spent in the fiscal ended March 31, 2020, as a result of the Covid-19 outbreak. This capex, it said, will largely be for maintenance purposes and not expansion.

It has deferred the commissioning of its 2.2-million-tonnes grinding unit in Odisha from March 2021 to the next financial year even as it expects downstream capacity expansion at grinding units in West Bengal and Bihar to end soon and get commissioned within the same deadline.

The company also said it has restricted the capex for its new waste-heat recovery plant at the moment.

UltraTech Cement isn’t the only one to defer its capex plans for the quarter. The world’s harshest lockdown imposed in the aftermath of the Covid-19 outbreak in India has also delayed the capex plans of Lafarge Holcim’s India units—ACC and Ambuja Cement.

Brokerages anticipate delays to capacity expansion of all cement makers.

While Motilal Oswal expects ACC’s 18 percent capacity addition to be delayed by 6-12 months, pushing it to 2022-end, Morgan Stanley said Ambuja Cement’s 4.5 MTPA capacity expansion at Marwar in Rajasthan will be completed by the first quarter of 2021 from the earlier deadline of 2020-end.

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