Cost headwinds catch up with Ultratech Cement in Q2FY12
Chandrakant / 21 Oct 2011
Continued concerns related to higher input costs and lower demand indicate an uncertain future for Ultratech Cement.
UltraTech Cements, one of the largest cement manufacturing companies, declared its Q2 FY12 results yesterday, reporting robust performance on a YoY basis because of a lower base effect. The profit after tax increased by 141% on a yearly basis, on the back of lower interest outgo and higher sales revenue during the quarter, which increased by 21%.
However, when we look at the QoQ numbers, the result was pretty disappointing. The company reported a 2% decline in net sales, following a slowdown in demand in construction and real estate activity due to high interest rates and the monsoon season, which led to growth moderation. The EBITDA margin declined by 900 bps to 16.4%. This was mainly on account of higher variable cost, up by 14% because of higher input and fuel cost, i.e. a 30% increase in the price of domestic coal and the continuous rise in prices of imported coal.
To make the situation grimmer, cement prices also came down by Rs 10-15 per 50 kg bag on an average during the quarter. Therefore, companies in the industry will find it difficult to maintain their margins in this rising input cost, lower price and demand slowdown scenario. On its further outlook, UltraTech said that growing input costs will result in a squeeze in margins in the coming quarter.
The company has increased its cement prices between Rs 5-10 from October 2011, except in the southern region, where demand starts picking up after the monsoons. However, due to the festive season, we usually see a shortage of labor that hampers construction work. Therefore, the coming quarter is expected to see a slow pickup in demand, and to gain pace in Q4 FY12.
The increase in cement prices will enable the company to set off some of its higher input costs. However, keeping in view the continued concerns with related to higher input costs and lower demand, we recommend that investors stay away from the scrip. The scrip has not seen any major movement after the result announcement, and was down by 1%.
However, when we look at the QoQ numbers, the result was pretty disappointing. The company reported a 2% decline in net sales, following a slowdown in demand in construction and real estate activity due to high interest rates and the monsoon season, which led to growth moderation. The EBITDA margin declined by 900 bps to 16.4%. This was mainly on account of higher variable cost, up by 14% because of higher input and fuel cost, i.e. a 30% increase in the price of domestic coal and the continuous rise in prices of imported coal.
To make the situation grimmer, cement prices also came down by Rs 10-15 per 50 kg bag on an average during the quarter. Therefore, companies in the industry will find it difficult to maintain their margins in this rising input cost, lower price and demand slowdown scenario. On its further outlook, UltraTech said that growing input costs will result in a squeeze in margins in the coming quarter.
The company has increased its cement prices between Rs 5-10 from October 2011, except in the southern region, where demand starts picking up after the monsoons. However, due to the festive season, we usually see a shortage of labor that hampers construction work. Therefore, the coming quarter is expected to see a slow pickup in demand, and to gain pace in Q4 FY12.
The increase in cement prices will enable the company to set off some of its higher input costs. However, keeping in view the continued concerns with related to higher input costs and lower demand, we recommend that investors stay away from the scrip. The scrip has not seen any major movement after the result announcement, and was down by 1%.
If you want to stay updated with the share market news today, keep a close watch on the indian stock market today with real time movements like sensex today live and overall stock market today trends. Investors tracking ipo allotment status, ipo news today, or the latest ipo india can also follow daily updates along with bse share price live data. Whether you are learning how to invest in stock market in india, preparing for a market crash today, or searching for the best stocks to buy in india, insights on top gainers today india, top losers today india, trending stocks india and long term stocks india help in making informed investment decisions.