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Informist, Monday, Oct. 21, 2024

By Rajesh Gajra

MUMBAI – Ultratech Cement Ltd. is keeping a sharp eye out on demand going forward, as the first two quarters of the current financial year have seen the company's revenue and profitability being hit due to sluggish demand, the company's management said in a post-earnings conference call with analysts Monday. Atul Daga, business head and chief financial officer, said in the call that the September quarter typically sees demand being affected due to the monsoon, and the intensity of the rains was the highest this year as compared to the last many years.

In the September quarter, Ultratech Cement's domestic grey cement sales volumes rose just 3% on year and fell 15% on quarter to 25.75 million tonnes. Along with a fall in selling prices, this dragged the revenue from grey cement down 6% on year and 17% on quarter to INR 126.18 billion.

A good monsoon is not good for the cement company in the short term, but it is good in the long term as crop productivity goes up and rural demand improves, the management said. The second half of the current financial year will see double-digit improvement in demand and volume, Daga said.

"Demand is the key for any industry, if demand is good everything falls in line...if there is demand growth, there will be profitability," Daga said in response to a question about falling profitability, as measured by earnings before interest, tax, depreciation, and amortisation per tonne of Ultratech Cement in the last four-five years.

The company expects double-digit growth in Oct-Mar on the back of a better pace of domestic infrastructure investment, rural demand picking up due to a good harvest after a good monsoon, and continued growth in demand for urban housing. In the December quarter, Daga expects the demand pick-up to be slow in the current month and buoyant in Nov-Dec.

Due to weakness in demand, Ultratech Cement's pricing power was weak and grey cement realisation fell 8.4% on year and 2.9% on quarter to INR 4,901 per tonne in Jul-Sept. Grey cement revenue, which fell 6% on year and 17% on quarter due to this, makes up for a substantial 82.4% of total consolidated revenue of the company. The consolidated revenue fell 3% on year and 14% on quarter to INR 153.08 billion in the September quarter. It was the first on-year fall in at least 17 quarters, and the sequential fall of 14% was the most in 13 quarters.

Amid the grim sales performance during the September quarter, the company saw an improvement in demand in the commercial space. On the revenue front, cement prices were another factor that the company struggled with in Jul-Sept. Sluggish demand in the cement industry meant pricing power was low for all cement companies, including Ultratech Cement, the largest cement producer in the country.

To a question on whether the competitive intensity was being reflected as cost of discounts charged to other expenses, which rose nearly 5% on year in the September quarter, Daga did not comment on discounts but said that if they were given, they would be "netted out of selling prices...while only promotion costs would be in other expenses".

The September quarter also presented before Ultratech Cement the contrasting picture of white cement sales volume increasing 7% on year to 0.45 million tonnes but revenue falling 10% on year to INR 5.25 billion. According to Daga, putty prices had taken a beating in Jul-Sept and the weak realisation was reflected in the revenue.

On the costs front, there were a mix of factors that aided or hit Ultratech Cement during the September quarter. The company's EBITDA fell 18% on year and 30% sequentially to INR 22.39 billion. While the poor top line performance was the major factor behind this, a 1% increase on year in raw material costs, which made up for 15% of total operating costs, was a drag on the EBITDA. This was mainly due to increase in fly ash and gypsum prices as compared to the same quarter a year ago.

Clinker, however, makes up a chunk of the components that go into making of cement, and limestone raising costs declined on year in Jul-Sept. But not much of a benefit of that was accrued to Ultratech, as clinker utilisation fell to 73% in the September quarter from over 90% in the year-ago quarter and 85% in the previous quarter.

Lower fuel costs, which made up for 22% of total operating costs, aided Ultratech Cement's profitability. Fuel cost fell 17% on year and 7% sequentially as blended imported fuel consumption cost was sharply lower by 18% over the year-ago quarter and 10% over the previous quarter. This was aided by a fall in petcoke prices. The petcoke consumption mix surged to 54% in the September quarter from 37% in Apr-Jun and 39% a year ago. Daga said that the petcoke consumption mix would keep going up.

To a question seeking update on the India Cements acquisition, Daga said the company was awaiting approval from the Competition Commission of India. He said that queries from CCI had been answered, and it was likely that the regulatory body would have more queries. "It is a process which one has to follow," Daga said.

Shares of Ultratech Cement ended Monday 1.8% lower at INR 10,869.30 rupees on the National Stock Exchange.  End

Edited by Avishek Dutta

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