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UltraTech Cement (BOM:532538) |
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WIKI ANALYSIS
UltraTech (ULT), an Aditya Birla Group Company and a 51% subsidiary of Grasim, has a capacity of 21.9 MT, thus making it the third largest cement producer in the country (little over 10% market share). The company has presence in the western, eastern and southern regions. It also manufactures ready mix concrete (RMC) and is the largest exporter of cement clinker. Its export markets span out around the Indian Ocean, Africa, Europe and the Middle East.
During FY09, UltraTech Cements reported 16% YoY growth in the topline on account of sustained demand for the commodity and higher cement prices. The company witnessed marginal decline in operating profits mainly on account of higher energy and raw material costs. The total cost of operation went up by nearly 24% YoY. In FY09, subdued performance at the operating level, higher interest costs and depreciation charges exerted pressure on bottomline growth.
Post FY04, with the upturn in cement prices the company’s performance improved. The result of branding and benefits of turnaround also kicked in. However, any decline in sales realisations or slowdown in exports (as capacities are also coming up in Middle East) and the inability of domestic markets to consume unsold export quantity will impact margins. We are positive on the sector’s growth prospects owing to infrastructural activity taking place to support and sustain the current economic growth. However, the upcoming planned capacities have started exerting downward pressure on realisations. The company had embarked on a capex plan of around Rs 20 bn to be spent over the next 2 to 3 years, which includes capacity expansion, setting up of captive power plants and ready mix concrete plants. This expansion will be funded through internal accruals. However, if prices soften at a faster rate than expected, it might put pressure on the company’s cash flows.
| Financial performance snapshot | ||||||
| (Rs m) | 4QFY08 | 4QFY09 | Change | FY08 | FY09 | Change |
|---|---|---|---|---|---|---|
| Net sales | 16,010 | 18,601 | 16.20% | 55,088 | 63,831 | 15.90% |
| Expenditure | 11,116 | 13,271 | 19.40% | 37,830 | 46,767 | 23.60% |
| Operating profit (EBITDA) | 4,895 | 5,331 | 8.90% | 17,258 | 17,064 | (1.10%) |
| EBITDA margin | 30.60% | 28.70% | 31.30% | 26.70% | ||
| Other income | 280 | 287 | 2.80% | 1,007 | 1,036 | 2.80% |
| Interest | 212 | 340 | 60.30% | 823 | 1,255 | 52.50% |
| Depreciation | 650 | 906 | 39.40% | 2,372 | 3,230 | 36.20% |
| Profit before tax/(loss) | 4,312 | 4,372 | 1.40% | 15,070 | 13,615 | (9.70%) |
| Tax | 1,483 | 1,277 | (13.90%) | 4,994 | 3,844 | (23.00%) |
| Profit after tax/(loss) | 2,829 | 3,095 | 9.40% | 10,076 | 9,770 | (3.00%) |
| Net margin | 17.70% | 16.60% | 18.30% | 15.30% | ||
| No of shares (m) | 124 | 124 | ||||
| Diluted EPS (Rs)* | 78.5 | |||||
| P/E (times) | 7.2 | |||||
- trailing twelve month earnings
| Cost break up | ||||||
| (as a % of sales) | 4QFY08 | 4QFY09 | FY08 | FY09 | ||
|---|---|---|---|---|---|---|
| Consumption of raw materials | 11.20% | 13.80% | 9.50% | 9.60% | ||
| Staff cost | 3.10% | 3.00% | 3.00% | 3.40% | ||
| Power and fuel | 23.10% | 21.80% | 22.80% | 26.80% | ||
| Outward freight | 17.60% | 16.70% | 17.60% | 16.80% | ||
| Other expenditure | 14.40% | 16.00% | 15.80% | 16.60% | ||
Quarterly Result Analysis- Sept '09
Performance summary
- Topline grows by 10.4% YoY on the back of higher volumes.
- Operating profits grow robustly by 58.4% YoY growth, supported by growth in topline and lower cost of operation.
- Despite higher other income and lower finance charges, growth in the bottomline is capped at around 52.8% YoY owing to higher tax expenses.
| Financial performance snapshot | ||||||
| (Rs m) | 2QFY09 | 2QFY10 | Change | 1HFY09 | 1HFY10 | Change |
|---|---|---|---|---|---|---|
| Net sales | 13,962 | 15,408 | 10.40% | 29,250 | 35,268 | 20.60% |
| Expenditure | 10,995 | 10,708 | (2.60%) | 21,496 | 23,068 | 7.30% |
| Operating profit (EBITDA) | 2,967 | 4,700 | 58.40% | 7,754 | 12,199 | 57.30% |
| EBITDA margin | 21.30% | 30.50% | 26.50% | 34.60% | ||
| Other income | 278 | 308 | 10.60% | 216 | 318 | 47.10% |
| Interest | 309 | 299 | (3.30%) | 556 | 628 | 13.00% |
| Depreciation | 808 | 967 | 19.70% | 1,519 | 1,902 | 25.20% |
| Profit before tax/(loss) | 2,129 | 3,743 | 75.80% | 5,895 | 9,987 | 69.40% |
| Tax | 487 | 1,234 | 153.10% | 1,603 | 3,300 | 105.90% |
| Profit after tax/(loss) | 1,642 | 2,509 | 52.80% | 4,292 | 6,687 | 55.80% |
| Net margin | 11.80% | 16.30% | 14.70% | 19.00% | ||
| No of shares (m) | 124.5 | 124.5 | ||||
| Diluted EPS (Rs)* | 97.7 | |||||
| P/E (times) | 8.4 | |||||
*trailing twelve month earnings
What has driven performance in 2QFY10?
- UltraTech Cement achieved 10.4% YoY growth in topline during 2QFY10 on account of higher volumes. While production volumes were up 12% YoY, growth in domestic dispatches stood at nearly 11% YoY during the same period under consideration. While demand for the commodity is still ticking in, upcoming capacities have started exerting pressure on realisations.
- The impact of softening of fuel prices has started kicking in. The company had set up captive power plants to contain costs, which also helped the company contain overall costs. These benefits resulted in 16% YoY fall in overall variable costs. The overall cost of production for the quarter was lower by 2.6% YoY. This coupled with volume driven double digit growth in revenues led to 9.3% expansion in operating margins.
- The growth in profits before tax (PBT) stood at 75.8% YoY, outpacing growth at the operating level. This is owing to higher other income, lower interest costs and less than proportionate growth in depreciation.
- The company has planned a capital outlay of Rs 20 bn to set up captive thermal power plants of 25 MW over the next two years. The planned investment expenditure also includes setting up additional grinding and evacuation facility and waste heat recovery systems across units for generating power out of waste gases. The company has completed its capacity expansion plans. Hence, going forward too we do not foresee interest or asset replacement cost to significantly impact the profitability of the company.
- At the net level, growth in profits stood at 52.8% YoY. Compared to PBT, growth in bottomline slowed down on account of higher tax outgo.
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