BackQ1 results: UltraTech does well in a challenging environment
The cement giant's performance was merely in line with expectations on the Street
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In spite of a dull trading session on Monday, UltraTech Cement Ltd’s shares shot up by 4.3% to ₹ 3,353.95 after the June quarter results were announced. The cement giant’s performance was merely in line with expectations on the Street. Perhaps investors wanted to celebrate its stable operating performance in a tough market environment. It is not unknown that infrastructure and real estate projects—the largest consumers of cement—are yet to gain momentum, dampening cement demand.
UltraTech Cement’s operating margin of 18.1% was in the spotlight, as it was a tad above Bloomberg’s consensus and the year-ago period. It also scored over its competitor ACC Ltd’s margin of 9.4%, which was a big disappointment. And it comes at a time when the whole sector is battling volume and price contraction due to weak demand.
What helped was a 3 percentage point dip in power and fuel costs. Analysts say the firm increased the use of pet coke from 64% in the March quarter to 68% in June. Pet coke prices are 20-25 % cheaper than coal and this helped improve energy costs. Of course, this was partly negated by higher freight costs, which is a fall out of increased railway freight. Amid challenging times, the expansion in operating profit per tonne is commendable.
Besides tight cost-management, which has been the hallmark of UltraTech Cement over the years, a marginal 3% expansion in net realization also aided profitability. “Improved realization was a function of stable cement prices in the eastern and southern regions," says Shrenik Gujrathi, an analyst at Angel Broking Pvt. Ltd, adding that the 3.8% growth in sales volume also gave a leg up to revenue, which was slightly higher than a year ago.
UltraTech Cement has been among the sector favourites given its outperformance compared with industry peers. Even the June quarter net profit at ₹ 590.8 crore was only 5.6% lower than the year-ago period, marginally beating forecasts on the Street. This was in spite of higher interest cost that weighed down on profit.
It was little wonder then that the stock has consistently beaten returns of benchmark indices and rivals.
The writer does not own shares in the above-mentioned companies.
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