News Analysis

UltraTech Cement Q2 results indicate healthy volumes

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

However, realisations drop in a seasonally weak quarter and may continue to be under pressure in the near-term

UltraTech Cement reported a 113 per cent (y-o-y) surge in profit after tax (consolidated), in the September 2020 quarter. However, this includes a one-time exceptional gain of ₹356 crore — on account of sale and re-measurement of certain discontinued operations. Barring this one time gain, the cement manufacturer reported a 51 per cent (y-o-y) jump in profits in second quarter to ₹875 crore.

While the surge in profits were largely in line with estimates, volumes beat expectations. Post a heavy drop in volumes in the first quarter of FY21 (UltraTech’s volumes dropped 32 per cent in June quarter), industry wide cement sale volumes were expected to remain benign in the September quarter as well. This was after factoring in both Covid-led disruption in demand and the seasonal weakness in the monsoon quarters. ACC that posted its Q2 numbers earlier this week, also reported flattish growth in its volumes.

However, UltraTech Cement reported a healthy 8 per cent (y-o-y) growth in consolidated volumes (considering Century’s assets in the base year) in the September quarter. With its pan-India reach, the company saw increased demand from rural pockets which sustained into until the September quarter.

The sales mix indicates that demand from urban and infrastructure projects is yet to come backto normalcy. The mix of trade (retail) and non-trade segments in grey cement sales was at 70:30 in Q2FY21. While there is a notable improvement from the June quarter mix of 78:22, the ratio has not yet resumed to pre-Covid levels of 67:34.

Cost savings to moderate

The company continued to report savings on the cost front. In the September quarter, fixed costs and power and fuel costs declined by 14 and 7 per cent, respectively (y-o-y). This coupled with a 12 per cent savings each in employee cost and other expenses, led to a 35 per cent surge in EBITDA to ₹2,784 crore. EBITDA per tonne improved 30 per cent to ₹1,387 year-on-year.

However, owing to weak realisations (down 2-3 per cent sequentially) and increase in raw material and logistics costs (up 6 and 2 per cent Q-o-Q), EBITDA per tonne fell 5 per cent sequentially. Going ahead this challenge may persist.

The management indicated that cost savings in the coming quarters might be dented due to increase in prices of fly ash and diesel. Pet coke prices are also on the rise. Power and fuel costs are expected to surge by about 10 per cent, in the coming quarters.

But the company is currently relying more on imported coal, which can help limit the increase in overall power and fuel costs, in the quarters ahead.

Besides savings on power costs are also likely, with the commissioning of WHRS (Waste Heat Recovery System) plants in the assets acquired from Century.


Bara plant and Dalla Super clinker plant (brownfield expansions) are expected to be commissioned by end of FY22. This could likely aid in enhancing the return on equity from the current levels of 10 per cent. Weak ROE numbers thus far were largely on account of heavy idle cash on the balance sheet (over ₹10,000 crore according to the management), which the management plans to utilize for its upcoming capex plans.

In the September quarter, the company achieved a sizeable reduction in debt. The company’s net debt to EBITDA stands at 1.1 times (compared to 2.16 times in the corresponding quarter last year). After paying off about ₹342 crore in the quarter, the total outstanding debt of the company is (as at end of the September quarter) at ₹22,556 crore.

The stock has gained 51 per cent since the March 2020 lows. Thanks to the sharp rise in earnings, the stock trades at 21.4 times its trailing twelve-month earnings, which is at a 47 per cent discount to its 3 -year average PE multiple of about 40 times. While volumes are expected to improve, realisations may moderate sequentially.

Published on October 21, 2020

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