Ultra Tech disappointing Q2FY12 numbers

Chandrakant / 21 Oct 2011

Ultra tech cements one of the largest cement manufacturing companies declared its result yesterday and reported robust performance on a YoY basis because of lower base effect.
Ultra tech cements one of the largest cement manufacturing companies declared its result yesterday and reported robust performance on a YoY basis because of lower base effect. The profit after tax increased by 141 percent on a yearly basis on back of lower interest outgo and higher sales revenue during the quarter which increased by 21 per cent. 

However when we look at QoQ numbers the result was pretty disappointing. Company reported a decline in the net sales by 2 percent due to slowdown in demand in the construction and real estate activity due to high interest rates and monsoon season which led to growth moderation. Whereas EBITDA margin declined by 900 bps to 16.4 per cent. The Decline in the EBITDA margin was mainly on account of higher variable cost up by 14 per cent because of higher input and Fuel cost i.e. increase in the price of domestic coal which were up by 30 per cent and continuous rise in prices of imported coal.  

We believe Cement demand in India, has declined in last one quarter mainly on account of a fall in the construction activity due to higher interest rate and partly due to monsoon.  Moreover to make the situation grimmer the prices during the quarter also came down on an average by Rs 10-15 per 50 Kg bag.  Therefore companies in the industry will find it difficult to maintain their margins in this rising input cost, Lower prices and demand slowdown scenario. Even Company on the further outlook said that, growing input costs will result in a squeeze in margins in coming quarter. 

The company has increased the cement price from the October month between Rs 5-10 except in southern region after monsoon where in demand starts picking up however due to festive season usually we see shortage of labor that hampers the construction work. Therefore the coming quarter will see a slow pickup in demand and will gain pace in the 4th quarter FY12.  The increase in the cement prices will enable the company to set off some of its higher input cost. However keeping in view the continued concerns with related to higher input cost and lower demand we recommend investors to stay away from the scrip. The scrip after the result announcement has not seen any major movement and was down by 1 per cent.


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