UltraTech Cement - Weak H1FY12, pressure on margins to continue

Chandrakant / 17 Nov 2011

UltraTech Cement will continue to face margin pressures due to higher coal prices & higher freight cost.
UltraTech Cement's net sales company grew by 15% due to a 16.1% improvement in realizations to Rs 4337. However the significant jump in the realization was a result of a low base effect on account of the fall in cement prices in H1FY11.

On the other hand, sales volume declined by 1.1% on the back of low demand due to a weakening economic situation.

Performance Highlight   H1FY12 H1FY11 % change
Capacity (Mn T) 48.75 48.75 0
Production 18.51 18.53 -0.1
Sales Volume  19.08 19.29 -1.1
Sale (Rs Cr.) 8275 7205 14.9
Relaisation/Tonne 4337.0 3735.1 16.1
PBIDT 1939 1562 24.1
PBIT 1493 1130 32.1
PAT  962 674 42.7

As per the H1FY12 numbers released by the company including the figures for Samruddhi Cement, it can be seen that operating profit improved by 24% despite an increase in input costs (increase in domestic coal prices and escalation in freight cost). However this improvement in the operating profit was mainly on account of  higher sales reported during the fiscal year.

The company has said that its capex initiatives and efforts towards optimizing efficiencies, have to some extent offset the effect on its margins on account of rising input costs.

We at DSIJ believe that pressure on margins may continue in the coming quarter due higher coal prices and higher freight cost. Also considering the current situation of a slowdown in demand, the volume off take will remain low and is only expected to gain pace in Q4FY12.

Also Read: UltraTech Cement to increase capacity by 10 MTPA