Ultratech Witnessed 52% Decline In Bottomline

UltraTech cement, the Aditya Birla Group Company posted poor performance for Q2FY14. The Net sales of the company have dipped by 4% to stand at Rs 4502 crore in Q2FY14 as against Rs 4699 crore reported in Q2FY13. The Net profit of the company declined drastically by 52% to stand at Rs 264 crore in Q2FY14 as against Rs 550 crore reported during the same quarter last fiscal. Company suffered this decline in net profit due to higher expenses and financial cost. The total expenses (excluding financials), which forms 85% of the sales rose by 4% in Q2FY14 as compared with same quarter previous year while the financial cost of the company jumped up by 48% in Q2FY14 to stand at Rs 88.75 crore.

Realisation per tonne for the company remained subdued by 1% to Rs 4802 on YOY basis. Overall EBITDA margin has moved down to 15% from 21% on YOY basis. While on yearly basis the EBITDA per tonne dipped by 35% to Rs 703.

In other development during the quarter, the company has commissioned a 25 MW (mega watt) thermal power plant at Rajshree Cement (subsidiary of Aditya Birla Group) in Karnataka to enhance its cement manufacturing unit. Moreover, the company has also commissioned cement mill of capacity 1.6 MTPA (million tonnes per annum) at Jharsuguda in Odisha in Q2FY14.

The whole cement industry is bleeding due to subdued demand for cement. According to company’s outlook, demand for cement is expected to grow at 4% in current fiscal year while on long term it may improve to 8%. In Q2FY14 the industry witnessed the softening of coal price which was negated by the depreciation of rupee. Raw material cost is consistently increasing as the diesel price has moved up.

The stock of the UltraTech Cement is trading at Rs 1975.25 with TTM price to earnings ratio of 23x. Considering the current scenario of the company and decline in demand of the cement sector, the stock of UltraTech Cement is not worth recommending at this juncture.