For cement major and Aditya Birla Group firm UltraTech Cement Ltd, the September quarter results mark a key milestone as it is the first set of numbers after the merger of Samruddhi Cement Ltd, Grasim Industries Ltd’s hived-off cement entity.
But it was a disappointing debut performance, as the net profit of Rs 115.8 crore was about half the consensus estimate of Rs 220.3 crore. Like its peers, UltraTech was hit by sharp fall in realizations and a rise in costs, mainly power and fuel.
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The management’s indicative figures for sales and profit of the year-ago period indicate a 9% fall in net sales to Rs 3,214.7 crore. Per tonne realizations threw no surprises, as higher supply and lower demand was expected to adversely affect the cement sector. For UltraTech, realizations contracted by 13.7% to Rs 3,533/tonne in the September quarter. Investors should have expected this, given that around 45% of its sales are in the western and southern regions, which have faced severe pricing pressure in the last three months.
Some analysts were prepared for such results, taking a cue from the other pan-India major, ACC Ltd, which reported a steep drop in realizations, to Rs 3,390/tonne last week. Even on a quarter-on-quarter (q-o-q) basis, realization per tonne for UltraTech was 9% lower (figures arrived at by adding up the stand-alone Samruddhi and UltraTech figures).
But the operating profit margin fell q-o-q from 25% to 13%, dragged down by higher costs of raw materials, power and fuel. The latter was at 26% to sales, against an estimated 22%. Staff costs too rose, while only freight costs remained flattish. What disappointed the markets was the steeper-than- expected drop in operating profit margins. A September quarter preview report by Motilal Oswal Securities Ltd said, “Decline in realizations coupled with higher freight cost and negative operating leverage would result in 950 bp (basis points) q-o-q decline in Ebitda margin to 15.6%.” Ebitda stands for earnings before interest, tax, depreciation and amortization.
Profit before interest and tax fell by a sharp 59.8% to Rs 476 crore. Net profit plunged by 81.6% to Rs 115.8 crore. Of this, around Rs 38.5 crore came from other income. The net profit margin was a low 3.6%.
UltraTech has not been deterred by severe pricing pressures and the margin squeeze. It acquired management control of its acquired West Asian firm, ETA Star Cement, taking its total capacity to 52 million tonnes per annum. Besides, analysts reckon that the firm has drawn up Rs 10,000 crore capex plan for the next three years.
For now, the sector which is out of favour is being closely monitored by analysts for cement price triggers. UltraTech shares have, like its peers, underperformed the BSE Sensex, trading at around 17 times the estimated fiscal 2012 earnings.
Graphic by Naveen Kumar Saini/Mint
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