UltraTech Cement sees good dispatches growth in Dec 2011

If we look at the MoM performance, the dispatches have gone up by 17%. This is mainly due to the revival that has been seen in construction and infrastructure activity post the monsoons. Also, the cement business is cyclical, and the 2nd half of the financial year tends to be better than the 1st half. We expect a further improvement in the coming months.

However, the YTD growth in dispatches reveal that the year has remained challenging for cement companies, not just on the demand side but also on the input cost side. The company’s dispatches have grown by just 2.7% on a YTD basis. The muted growth in dispatches was largely due to the extended monsoons and later due to a higher interest rate, which slowed down investments in the infrastructure sector.

On the pricing front, the company had raised cement prices across the country from Oct 2011 onwards. The prices have shot up by Rs 10-l5 per 50-kg bag in most of the regions, and are currently at an annual high of Rs 280 per 50-kg bag.

We, at DSIJ, believe that UltraTech Cement will will see decent growth in their revenues in the upcoming quarterly results largely for 2 reasons. First is the fact that the increased cement prices for the Dec 2011 quarter will lead to higher realisation. Secondly, higher dispatches in Dec 2011 will result in decent revenue growth. However, the pressure on the margins may continue due to high freight charges as well as interest expenses.