Better realisations also drove operating performance with the company’s earnings before interest, tax, depreciation and amortisation (EBITDA) growing 57 per cent year-on year to Rs 2,550 crore. The per tonne profitability came at Rs 1,428, much better than ACC and Ambuja Cements’, which reported per tonne EBIDTA of Rs 934 and Rs 1,086, respectively.
Analysts say that higher realisation growth with soft volumes validates channel check findings that UltraTech
offered relatively less incentives or discounts to dealers compared to peers during the quarter at the cost of volume. Consequently, while volumes suffered it was able to report superior profitability.
The net profit at Rs 1,199 crore thus was visibly ahead of analysts’ estimate of Rs 1,103 crore.
Meanwhile, the company continues moving ahead on integration of the acquired capacities to drive future growth. With major overhauling of the plant and completion of quality upgradation, UltraTech Nathdwara Cement (earlier a Binani Cement facility) has been fully integrated with UltraTech’s systems and processes. The company highlighted it has achieved break-even at the profit before tax level within two quarters of its acquisition.
The 21.2 MT per annum of cement capacities acquired from Jaiprakash Associates (Jaypee) in June 2017 are also operating in line with the existing plants of UltraTech. The management highlighted that the acquisition has now become earnings accretive. However, the Bara Grinding Unit associated to these capacities is scheduled for commissioning during Q3-FY20 due to some technical delays.
On the whole, analysts remain positive on the company despite the lower than expected volumes in Q1. Binod Modi at Reliance Securities says that while operating expenses and volumes were key negatives, a substantial improvement in realisation drove overall operating performance. Jaypee Assets turning earnings accretive in the quarter was also a key positive and Modi maintains his positive recommendation on the stock. Even analysts at IDBI Capital maintain their positive rating post strong set of numbers albeit a nominal volume hit, while those at Sharekhan see UltraTech as their preferred pick in the sector with its timely expansions and increasing profitability of acquired units in the shortest possible time.
The cement demand scenario, however continues to remain soft in the ongoing quarter. With the monsoon season under progress and construction activities getting impacted, it is also weighing on realisations. Though analysts expect a revival in rural cement consumption and government’s spending on infrastructure and housing projects to push up demand post monsoons thereby driving cement volumes, investors need to be watchful on volume trends and realisation improvement before taking exposure to cement stocks.