Our debt reduction plan will continue, says UltraTech Cement CFO Atul Daga

Suresh P Iyengar Mumbai | Updated on October 21, 2020

‘We expect demand from real estate to remain sluggish this fiscal due to non-availability of credit’

UltraTech Cement has managed to double its profit despite Covid challenges on the back of tight cost control. The advantage of having a pan-India presence with over 100-million-tonne capacity has helped the company sail through testing times. In an interview with BusinessLine, Atul Daga, Chief Financial Officer, UltraTech Cement, explained what lies ahead for the company. Excerpts:

When do you see capacity utilisation improving from the current level of 68 per cent?

Capacity utilisation is increasing every month since July and touched 73 per cent in September. We are targeting to hit 85 per cent in October. Overall in the December quarter, it should hover around 80 per cent as it is the peak season for construction activities. Usually demand revives through October after the monsoon and the beginning of the festival season.

Do you expect the cost to remain low?

Not exactly. We expect some cost overheads as we revive market spends. Expense on travel and marketing will increase as market opens up in the December quarter. This apart, there will be expenses on replacing machinery parts and refilling of spares at the stores level. Overall, we expect additional expenses of ₹550 crore. Of this, ₹440 crore has already been incurred and another ₹100 crore will be spent in the December quarter.

What would be the value of asset held for sale?

These are certain assets inherited from the erstwhile Binani Cement acquisition. Of this, there are two cement assets in China and UAE and a non-cement asset in Europe. The China asset has been sold and money has been realised in this quarter. We have written off ₹24 crore advance extended to the European unit as it was not recoverable. We are scouting for a buyer for the UAE asset which is valued at ₹1,000 crore by us but there are no buyers for this asset at present.

Will the raw material prices remain under control?

Most of our raw material sourcing are captive, except for fly ash. The price of fly ash has been volatile of late due to demand-supply mismatch. Earlier, power plants use to pay end users to lift the fly ash from their location, but now the situation has reversed. However, fly ash is only three per cent of our overall cost.

What is the target for loan repayment this fiscal?

We will continue to repay debt. Our current consolidated net debt to EBITDA is at about 1.22 times compared to 1.70 times in the March quarter. We want to bring it to below 1 times by the end of this fiscal. We have already repaid about ₹4,700 crore in the first two quarters of this fiscal.

A major portion of the cement demand is driven by government spending. Can this sustain, given the government financials?

Apart from giving subsidy for building houses, the government is also coming out with fresh tenders and paying the contractors on time. This process may continue as the greenshoots in economy is already visible. GST collection has been going up month-on-month. If the government stops spending we may dip into recession mode and it is aware of it.

New real estate projects are still not happening. Is this a concern?

Urban real estate projects account for 28 per cent of sales and of this 10 per cent is in tier-I cities such as Mumbai, Delhi, Bengaluru and Chennai. New projects are slow in these cities, but picking up in small towns. We expect demand from real estate to remain sluggish this fiscal given the non-availability of credit.

Published on October 21, 2020

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