UltraTech Cements – Margin Improvement due to subdued input costs

Sector Outlook – Positive

UltraTech Cement Ltd. had a good quarter ending December 2023, with their revenue reaching Rs. 16,739 crores. This was a 4% increase from last quarter and a 7% rise from last year. The boost came from higher demand in industries and rising cement prices. 

They sold 26.06 million tonnes of cement, a 5% increase from last year and 2% more than last quarter. The company’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) were Rs. 3,395 crores, growing by 38% compared to last year and 25% from last quarter. 

This growth is due to lower costs for raw materials, higher selling prices, and more demand. The profit they made for each tonne of cement in India was Rs. 1,208, up by 34% from last year and 27% from the previous quarter. 

Their highest-ever quarterly profit was Rs. 1,777 crores, a 68% increase from last year and 39% more than last quarter. Expenses for energy and fuel dropped by 16% from last year and 5% from last quarter, thanks to cheaper coal and petroleum coke. 

Costs for logistics and raw materials were almost the same as last year, but plant maintenance costs rose. Lastly, UltraTech Cement expanded into Jharkhand by buying a 0.54 million tonnes per annum grinding capacity from Burnpur Cement Ltd. in this quarter.

Key Concall Highlights

• Cement industry growth: The cement industry is likely to grow by 3-4% in the next quarter, a common trend during the festive season due to reduced labour availability at project sites.
• Capital expenditure: The company plans to spend Rs. 9,000 crores in the current and next year for various projects.
• Fuel costs: Expectation of decreasing fuel costs in the near future.
• Green energy: Currently, 24% of the company’s power comes from non-fossil fuel sources, aiming to double this by the end of FY25.
• Kesoram Industries acquisition: Acquired in Q2FY24, with the merger set for April 1, 2024. This will add Rs. 2,000 crores of debt but will be fully integrated once all approvals are received.
• Strong cement demand: Expected to rise from mid-December, which will likely lead to higher prices.
• Capacity utilisation: Currently at 77%, but expected to increase to at least 85% in the next quarter.
• Fly ash pricing: Varies from free to Rs. 500/600 plus transportation costs.
• Debt increase: Due to bets on lower fuel costs, but the goal is to have zero net debt by FY25.
• Industry growth forecast: Cement demand in CY24 is projected to grow by 8-9%.
• Waste Heat Recovery Systems (WHRS) capacity: Currently at 264MW, with new additions in FY24 increasing total capacity to 280 MW.

Valuation and Outlook

UltraTech Cement experienced a modest increase in its revenue, mainly because cement prices went up in southern and eastern India and there was more demand after the festive season. 

The company made good profit per tonne of cement, reaching around Rs. 1,200 in the Indian market. A significant part of their sales increase came from rural areas, which grew by 5%. Demand for cement in Central, Western, and Southern India also contributed to this growth.

Looking ahead, government spending on infrastructure before elections is something to keep an eye on, as it could affect how much cement is sold. Lower costs for energy and raw materials are helping the company make more profit and keep costs down. Additionally, 

UltraTech Cement’s new grinding facility in Roorkee, Uttar Pradesh, will be ready soon, boosting their production capacity. The focus in the coming quarter will be on how much cement is sold and whether the company can keep benefiting from lower costs for making cement.