UltraTech Cement reported an about 89 per cent YoY jump in consolidated net profits for the December 2019 quarter despite a 1 per cent drop in consolidated revenues. This is thanks to higher realizations and continued cost savings.

Cost savings

Construction activity in the country saw a lull in the quarter ended December 2019. While the construction ban in NCR, Haryana and Uttar Pradesh impacted volumes in the North, Andhra Pradesh and Maharashtra faced the brunt of upheaval in State-level politics.

Consequently, the sales volume of UltraTech Cement dropped by 3.8 per cent YoY. The drop in consolidated revenues was, however, curtailed at 1 per cent, to ₹10,176 crore, thanks to higher realisations on account of premium products. With a 40 per cent increase in volume of premium products, the overall realisations were up 4.4 per cent at ₹4,991 per tonne.

With increased share of blended cement and increase in fly-ash prices, the raw material cost per tonne inched up by 2 per cent to ₹501 per tonne. However, thanks to the cost savings on both energy and logistics, the operating profit of the company rose 25 per cent to ₹2,141 crore. The cost savings were on account of a drop in diesel and pet coke prices, and extension of exemption of busy season surcharge by the Railways.

Debt update

During the quarter the company hived off its Bangladesh subsidiary at an enterprise value of $30.2 million (approx. ₹208 crore). This led to a 10 per cent drop in the consolidated net debt levels of the company.

With finance costs largely under check (down 2 per cent YoY), the consolidated profit after tax surged 89 per cent to ₹712 crore. Also, the divestment of the Bangladesh subsidiary resulted in a gain of ₹8.96 crore (other income).

The surge in profits came in despite an excess provision of ₹133 crore during the quarter on account of the company opting for the Sabka Vishwas amnesty scheme.

Under the scheme the company has paid ₹133 crore as a one-time settlement for various disputed liabilities totalling to ₹832 crore.

Outlook

The assets of Century Cement have been merged with the company. The former’s plants operated at a capacity utilisation of 79 per cent in December. Also, with brand integration underway, 55 per cent of the sales from these plants are under the UltraTech brand. The management expects this to reach 84 per cent by Q2 FY21, which could help improve realisations further.

With the lifting of the embargo on construction in certain northern States and revival in order awarding by the Centre, volumes could rise in the last quarter of FY20. We expect the near-term savings on costs front to continue for a couple of quarters. This, coupled with better realisations on account of revival in demand scenario, will drive profits further.

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