UltraTech 53% profit increase doesn’t impress stock market

UltraTech 53% profit increase doesn’t impress stock market

Mumbai: The flagship cement maker of the Aditya Birla Group, UltraTech Cement Ltd, on Friday reported a 53% rise in net profit to Rs251 crore for the quarter ended September, but warned an increase in capacities in the sector “will inevitably pressure margins".

“The results are flat or just below our expectations. We had expected a net profit of Rs274 crore," an analyst with a domestic brokerage said on condition of anonymity.

UltraTech shares fell 2% to end Friday at Rs824.75 on the Bombay Stock Exchange. The Sensex, the country’s benchmark index, rose 0.74%, or 127.62 points, to 17,322.82.

The firm gained from a 23% increase in demand in the northern and eastern regions, said K.C. Birla, senior executive president and chief financial officer. A year ago, demand in the north rose 1% and in the east by 12%.

“This demand is coming mainly from places like UP (Uttar Pradesh) and Bihar," he said. “Rural demand is stronger, especially because of government schemes like NREGA (the National Rural Employment Guarantee Act)."

NREGA assures 100 days of employment for one member from every poor rural family.

The firm also kept expenses under check. Variable costs, which include the cost of importing coal to power cement plants, declined 16%.

As for the pressure on prices from cement firms adding capacity to cash in on a potential revival in construction activity, Birla expressed confidence on this front, saying more government spending on infrastructure would boost demand.

The firm’s capacity utilization in the latest quarter was 73% and could reach 80% if demand is robust, he added.

“Supply in the south is high and demand has not really picked up because of heavy rains and floods," he said. “Though the market has seen a negative growth of 3-5%, we have seen a growth of 10%."

Birla added that UltraTech is considering buying coal mines abroad to ensure the supply of raw materials to fuel its plants.

Captive plants feed 70% of the firm’s power needs, compared with 30% a year ago.

UltraTech produced 3.73 million tonnes (mt) of cement in the quarter, 12% higher than 3.33mt a year earlier.

It plans to spend Rs2,000 crore over the next three years to set up new power plants and grinding facilities.

“Rs800 crore will be spent this year, followed by Rs1,000 crore in 2010-11. The balance will be spent by 2013," Birla said.