Sector Outlook: Positive
Revenue declines and misses estimates
UltraTech Cement Ltd. reported a net revenue of Rs. 178,790 million for the June 2024 quarter, down 12% from the previous quarter and 5% from last year, missing the estimated Rs. 187,577 million. Sales volume was 31.95 million tonnes, a 9% drop from last quarter but a 7% increase from last year. The sales price per tonne was Rs. 5,045, slightly lower than before. Raw material costs rose, but fuel and power costs fell. Logistics costs also decreased. The company’s EBITDA was Rs. 32,050 million, flat compared to last year, with a margin of 17%. Net profit (PAT) was Rs. 16,970 million, with a profit margin of 9%. Earnings per share (EPS) were Rs. 58.82. The company’s installed capacity was 149.5 million tonnes with 85% utilisation. They sold 3.25 million cubic metres of ready-mix concrete, reduced their lead distance to 385 km, and increased their renewable power capacity. The cement-to-clinker ratio improved to 1.46x from 1.44x last quarter.
Key Concall Highlights
- Rural demand grew by 9%, while infrastructure demand was slower but expected to improve, especially in Bihar and Andhra Pradesh.
- The industry started FY24 with an installed capacity of 585 million tonnes (MT) and ended the year at 626 MT. Annual demand was 425 MT, leading to an overall capacity utilisation of 70%. UltraTech Cement accounted for 32% of new capacity additions and had an 85% utilisation rate.
- UltraTech plans to add 16 MT of capacity this year, representing 40% of the industry’s new additions.
- The company used 1.5 MT of alternative fuel at some kilns, which is 25% of fuel usage at certain plants, reducing costs and carbon emissions. UltraTech aims to keep the alternative fuel rate above 6.5% overall.
- UltraTech Cement acquired a 54% stake in the Ras-Al-Khaimah (RAK) White Cement Plant, strengthening its presence in the booming UAE market. RAK will become a subsidiary from the next quarter.
- The company improved logistics efficiency by reducing lead time by 15 km, saving Rs. 45 per tonne. UltraTech aims to reduce lead distance by more than 25 km as it expands from 59 to over 70 plant locations.
- UltraTech increased its Waste Heat Recovery System (WHRS) capacity to 301 MW, significantly lowering power costs. WHRS power costs Rs. 0.8-0.9 per unit compared to Rs. 7 per unit for regular power. Renewable power capacity is 650 MW, costing Rs. 4 per unit, resulting in further savings.
- The company expects rural and overall cement demand to rise, with Q2 being slower due to monsoons but picking up in Q3.
- Capacity utilisation: Southern and Western regions at 85%, Eastern at 80%, and Northern and Central at 82%.
Valuation and Outlook
During the quarter, factors like general elections, intense heat, lack of labor, and reduced demand impacted the cement business, leading to lower sales volume. Major companies like UltraTech Cement increased their market share, causing overall cement prices to drop, leading to a 5% decline in revenue per tonne year-over-year. However, lower input costs, especially for power and fuel, kept production costs stable, resulting in flat EBITDA figures. Looking ahead, cement prices may remain steady or decrease in the near term due to consolidation and the monsoon season. But demand and prices are expected to improve after the monsoons and with the festive season, along with the government’s infrastructure projects and growing rural demand supporting company growth.
