Ultratech Cement Reports Decent Numbers For March Quarter 2012

Ultra Tech Cement, India’s largest cement manufacturing company, has announced its results for the March quarter 2012 and reported decent QoQ and YoY performance. The revenue of the company has improved by 19 per cent on a YoY basis to Rs 5,336 crore and the net profit has gone up by 19.3 per cent on a yearly basis to Rs 867.3 crore.

Moreover, despite the hike in the input cost of raw material (up by 17 per cent YoY), power & fuel (up by 23 per cent YoY) and an increase in the freight charges (up by 14 per cent YoY), the company has been able to improve its EBITDA margin by 80 bps to 23.7 per cent on a YoY basis.  This improvement in the overall performance of the company was mainly on account of a pick-up in demand and higher realisation during the quarter.

Cement companies hiked the cement price by an average of Rs 20-25 per 50 kg bag during the quarter which resulted into higher realisation, up by 10.2 per cent to Rs 4,744 per tonne. Currently, the all-India average price of cement is ruling at an all-time high of Rs 300 per 50 kg bag. The hike in the cement prices was due to a pick-up in demand from the infrastructure and construction industry and due to a hike in the freight cost which was partially passed on to the customers. While the sales volume of the company during the quarter grew by 7.9 per cent to 11.25 million tonnes.

As mentioned in our results’ preview, the northern and western regions have seen the highest jump in demand due to higher infrastructure and construction activity which led Ultratech to report higher sales volume figure during the quarter. Cement sales increased in Gujarat on the back of increased government spending on infrastructure to complete various major projects.

Cyclically the demand situation for cement is fairly better during March quarter which also remains the best quarter in any fiscal year.  This is due to highest pick-up seen in the infrastructure and construction activities which has also been reflected in the dispatch numbers of major cement companies like ACC, Ambuja cement and Ultratech. However once monsoons begins in the June quarter we will see sluggishness in the overall demand for cement due to lower construction activity.

Further, there are concerns regarding higher capacities, higher input cost and freight cost which will keep worrying the cement companies in the coming year. Also, there has been a probe by the Competition Commission of India on the cartelization of cement which may have a negative impact on the cement companies and the industry.Therefore the next six months for cement companies will remain subdued.

As for the outlook, the company has stated that the cement industry is likely to grow by over 8 per cent linked to the government’s focus on infrastructure development. The surplus scenario is likely to continue for the next three years. Moreover, continuing rise in input costs will adversely impact the margins.

In conclusion, we believe that the demand in the coming quarter will decline due to the monsoon which will lead to lower sales volume. Moreover, due to lower cement demand the prices will also move in the downward direction. On the other hand, firm input costs and high freight charges will result in margin erosion for these companies. The overall scenario looks pretty grim for the cement companies in next couple of quarters.