Ultra Tech Posts Robust Q3FY12 Result

Ultra Tech Cement, one of the largest cement manufacturing companies in India, announced its Q3FY12 results on January 21 and reported robust QoQ and YoY performance. This was mainly on account of the pick up in demand and the higher realisation during the quarter. The revenue of the company has improved by 23.1 per cent on YoY basis to Rs 4,572 crore. The highlight of the result is the improvement in the net profit of the company which increased by 94 per cent on a yearly basis to Rs 616.86 crore. This was largely on account of better realisation, lower interest outgo which was down by 63 per cent on YoY basis to Rs 29.5 crore (on the back of subsidy availed in terms of the state investment promotion scheme) and higher other income portion which grew by 118 per cent to Rs 76 crore against the same period last year.

Also, the performance of the company post monsoon was quite good on a QOQ basis. The company reported a jump in net sales by 16.8 per cent due to a pick-up in demand in the construction and real estate activity whereas its EBITDA margin, which got impacted by higher input costs in the last quarter, improved by 600 bps to 22.5 per cent QoQ. The upward movement in the EBITDA margin was mainly on account of higher other income component, up by 118 per cent and higher realisation, up by 6.8 per cent on QoQ basis.

The higher sales volume and increase in realisation during the quarter has also helped the company to offset some of the higher input costs of power and fuel and freight charges which were up by 12 per cent and 15 per cent on a QoQ basis respectively.

The cement companies post monsoon have seen some pick-up in demand which was in tandem with the prices that also increased during the quarter across all the regions barring the south where the prices have remained flat or have seen a marginal improvement largely due to production discipline. The sales volume of the company during the quarter improved by 10.5 per cent on a QoQ basis to 9.89 million tonnes while the sales realisation improved by 16.1 per cent on a YoY basis to Rs 4,623 per tonne.
 
However, if we look at the year to date growth in the dispatches it is quite evident that the year has remained challenging for the cement companies. The company’s dispatch in the last one year has grown by just 2.3 per cent. This muted growth in dispatch was largely due to the extended monsoon and later due to the higher interest rate which slowed down the investments in the infrastructure sector.
 
We believe that the company has posted robust Q3 numbers, particularly in the bottomline of the result which was above our expectations. And going forward we expect the company to post decent numbers in Q4FY12, mainly on account of the further pick-up in demand from the infrastructure and construction activity which also cyclically remains the best quarter for the cement sector. However, after a change in the pricing method by Coal India Ltd from useful heat value (UHV) to gross califoric value (GCV) the prices of coal will shoot up further and this will impact the margins of the cement companies in the ongoing quarter.

At the current market price of Rs 1,223.50 the scrip is trading at a P/E of 14x at a trailing EPS of Rs 84.14. The valuation looks fair given the improvement expected in demand in the ongoing quarter. Also, the company has posted decent margins on the back of higher realisation which may not correct in the near term due to a pick-up in demand. However, the hike in the coal prices may impact the margins going forward. Keeping in view the above points we believe that there is still some marginal upside in the stock. Therefore, we recommend our investors to accumulate the scrip during the dips.