Soft demand weighs on UltraTech's Q3 volumes; misses Street expectations

The impact of soft cement demand was visible on UltraTech’s December quarter (Q3) sales volume, which fell 4 per cent year-on-year (YoY) to 20 million tonnes (mt). This was lower than the 21-22 mt estimate by Motilal Oswal Financial Services, causing UltraTech to miss the Street’s expectations.

Average cement realisations were in line with expectations at Rs 4,612 a tonne, up 5.4 per cent YoY and down 3.3 per cent sequentially. With demand remaining soft, the all-India price of a 50 kg cement bag fell 3 per cent sequentially, while on a YoY basis it remained higher, given the steep price hikes taken by cement producers in March-April 2019.

On the cost front, higher fly ash prices pushed up raw material costs by 2 per cent YoY, but lower diesel prices led to logistics costs declining 5 per cent YoY, while benign pet coke prices helped energy costs fall 15 per cent YoY.

 

 
Excluding a one-time expenditure of Rs 133 crore (pertaining to acquisition of Century’s cement plants), Ebitda at Rs 1,920 crore was up 25 per cent YoY and 6 per cent sequentially. This, however, was below consensus analysts’ estimate of Rs 2,065 crore.
Per-tonne profitability stood at Rs 960, compared to Rs 737 in the year-ago quarter and Rs 1,020 in the September quarter, estimate analysts. 

Therefore, adjusted net profit at Rs 735 crore (up 70 per cent YoY), was also lower than the Street estimate of Rs 802 crore.

The process of turning around acquired assets continues, wherein the Nathdwara plant, acquired from Binani, is now operating at 60 per cent of its 6.25 mt capacity, with operating profit per tonne at Rs 1,500, up Rs 425 since the buy. Century’s assets, too, are reporting decent improvement, say analysts.

With the firm’s market mix improving (post acquisition), and north/central-India contributing 45 per cent to volumes, analysts remain positive on UltraTech as the North is likely to see maximum improvement in capacity utilisation over the next two years. Cement realisations, too, are improving, but the Street will keep an eye out on the sustenance of price hikes. Analysts such as Kunal Shah at Yes Securities say the lower per-tonne pet coke prices ($70 compared to $80 in Q3 and $91 in Q2) should also help profitability. 

Binod Modi at Reliance Securities says that while the higher-than-expected sales volume decline in Q3 was an overhang, cost reduction and decline in net debt by Rs 200 crore were positives. The target price of analysts stands at Rs 5,000 and Rs 5,200 for the stock, trading at Rs 4,640.

Despite results missing expectations, UltraTech’s stock closed with a 2.4 per cent gain. Given January’s rally, investors could consider it on corrections.



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