Companies

Q4 Comment: UltraTech volumes drop; better pricing aids profitability

Keerthi Sanagasetti BL Research Bureau | Updated on May 21, 2020

UltraTech Cements, which accounts for 21 per cent of the country’s cement capacity, reported a 16 per cent drop in sale volumein the March quarter. Cement demand, which was already under pressure in the first nine months of FY20, saw a slump in the March quarter following the nationwide lockdown.

However, the company managed to limit the drop at the EBITDA level to just 1 per cent during the quarter. This is due to its continuing cost savings efforts and better realisations.

Despite expectations of weak demand, cement prices remained stable in most parts of the country during the March quarter. But Ultra Tech’s 19 per cent y-o-y growth in the sale of premium products pushed the overall realisations further. Hence, the company's consolidated revenues dipped by a lower 13 per cent y-o-y to ₹10,579 croredespite 16 per cent drop in volumes.

Cost savings

During the quarter, the company reported a 19 per cent decline in power and fuel costs. On a per tonne basis, too, power and fuel costs dipped by 13 per cent to ₹914 per tonne, largely led by the drop in pet coke prices. With the Railways foregoing the busy season surcharge, logistics costs, too, dropped by 3 per cent to ₹1,149 per tonne.

Raw materials, however, inched up by 5 per cent to ₹497 per tonne due to the increased share of premium products in the sales mix. However, the overall raw material costs were down by 7 per cent on the back of weak volumes.

Hence, the EBITDA per tonne surged by 17 per cent to ₹1,231 in the March quarter. The EBITDA margin for the quarter spiked to 25 per cent from 22 per cent in the year-ago period.

The reported profit after tax more than tripled during the quarter to ₹3,243 crore. This is due to a one-time reversal of deferred tax liabilities worth ₹2,112 croreon account of adopting the lower tax rate of 25 per cent.

Since most of the company’s plants currently operate at 60 per cent-plus capacity utilisation, the company is hopeful of posting good numbers in first quarter of FY21. While industry experts believe a short term lull in cement demand is likely, the management sounds hopeful of demand recovery. Some reports suggest a jump in sales in April-May 2020due to pre-buying on account of concerns over a second wave of infection.

In its earnings conference call, the management, highlighted that barring the western regions (areas around Maharashtra and Ahmedabad), the demand has gained enough momentum throughout the country, with relaxation inrestrictions on construction activities.

In the first two months of FY21, the company believes that rural demand from ongoing projects, which had targeted completion in the pre-monsoon period, drove the cement sale volume. The ongoing infrastructure projects, such as highway and metro construction contracts that have already been awarded, will drivevolume growth in urban areas.

However, the company believes that the exodus of labour will continue to be an overhang on cement demand in the near term.

Published on May 20, 2020

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