UltraTech Cement’s focus on cost helps it beat street estimates even as competition dents margins
- UltraTech Cement's margins shrank in Q3 despite revenue growth and falling fuel costs, but analysts had expected a worse hit.
Mumbai: The heightened competition in India’s cement sector continues to take its toll on cement makers. Market leader UltraTech Cement Ltd’s margins shrunk during the October-December quarter compared with a year ago even as its revenue grew and fuel costs fell.
However, UltraTech’s shares raced 6.81% to end Thursday’s trading at ₹11,422.70 each on BSE as the analysts had expected a higher margin hit because of the rising competition in the cement sector. The benchmark Sensex ended Thursday 0.15% higher.
India’s largest cement maker has focused on controlling costs to give its margins some headroom, deploying waste-heat recovery systems and piloting a waterways project for transport. Cement is a bulky commodity and logistics is one of the largest costs for cement makers, apart from raw material and fuel expenses.
During the third quarter, the Aditya Birla Group company completed the acquisition of Chennai-headquartered India Cements Ltd. UltraTech also expanded its capacity by 1.8 million tonnes per annum, bringing its total manufacturing footprint to 171.1 mtpa.
The company said it is on course to achieve more than 200 million tonnes of annual cement manufacturing capacity by 2026-27.
The Adani Group, India’s second-largest cement maker that entered the market just over two years ago, aims to have a total cement manufacturing capacity of 140 mtpa by then. Adani’s whirlwind entry into the market has led to a ruthless push for market share among top players, who have slashed prices to retain customers.
UltraTech, however, expects India’s cement demand to grow at 7-8% annually, driven by New Delhi’s focus on infrastructure development and housing projects.
Also read | Cement makers hike discounts after Adani’s entry
‘A good set of results’
UltraTech reported a consolidated profit of ₹1,470 crore for the December quarter, 17% lower than in the preceding three months. Its consolidated topline grew 3% year-on-year to ₹17,193 crore, while sales volume grew by a tenth.
The company, however, reported an 11% year-on-year decline in earnings before interest, tax, depreciation and amortization (ebitda) at ₹2,886 crore. Ebitda margin narrowed 265 basis points to 16.8%.
Analyst Mangesh Bhadang, a senior vice president at Centrum Broking, said UltraTech’s performance was ahead of his estimates. “UTCEM reported good set of results for Q3FY25,” he said in a note, adding that the company’s ebitda was 8% higher than what Centrum had estimated. Bhadang attributed this mostly to lower operating costs and better volumes.
UltraTech reduced its lead distance—the average distance a cement bag travels before reaching a buyer—by 20 kilometres year-on-year to 377 kilometres. The company also increased its use of renewable energy as a share of its total power requirements to 33.4% from 24.1% a year prior. Coupled with lower fuel costs, these efforts helped UltraTech arrest its costs even as sales price remained under pressure.
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First Published:23 Jan 2025, 07:08 PM IST
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