UltraTech Cement Q2 takeaways: Strong rural demand, cost cutting helps bottomline

NEW DELHI: Thanks to a higher revenue, lower expenses and proceedings from sale of assets, UltraTech Cement managed to double its net profits during the September quarter as demand returned.

The company surprised the Street with its bottomline and also kept its operating margin at a robust level. The company also sees demand for cement to surge and believes it will be a big beneficiary of that.

Here are key takeaways from the earnings:

How much did the company earn?
The cement maker reported a 113 per cent jump in its net profit at Rs 1,234 crore. Net sales rose 7.8 per cent to Rs 10,231 crore, from Rs 9,486 crore. It reported robust operating margins at 27 per cent, driven by both revenue growth and tight cost management.

What was the exceptional gain item?
UltraTech Nathdwara Cement, through its subsidiary Krishna Holdings Pte. Ltd (incorporated in Singapore), completed the divestment of its entire equity shareholding of 92.5 per cent in its cement subsidiary at a net consideration of $94.70 million. Moreover, the company also included a net gain of Rs 359.87 crore on sale of another step down subsidiary of UltraTech Nathdwara Cement. On the other hand, the company also added Rs 6.63 crore for an exceptional expense towards legal cases. This means a net gain of Rs 24.14 crore for the quarter.

Any update on its acquisitions?
The company said the 14.6 mtpa cement plants acquired during the previous financial year have been integrated and now the company is investing in improving its operations further.

Meanwhile, work on the company’s 3.4 mtpa cement capacity addition in Odisha, Bihar and West Bengal has picked up pace and are expected to get commissioned during FY22, in a phased manner.

What is the situation on its debt?
For the second quarter in a row, the company has reduced net debt substantially. With a prudent working capital management, and overall efficient operations, the company has shaved off Rs 4,728 crores of net debt in the first-half of this fiscal year.

What is the business outlook?
UltraTech expects demand for cement to grow on the back of the government’s thrust on infrastructure and the expanding rural economy. The recent policy measures announced by the Reserve Bank of India to support the real estate sector will also aid demand.

"The company’s capital and financial resources remain entirely protected and its liquidity position is adequately covered. Given its pan-India presence, UltraTech is well positioned to benefit from demand recovery across the markets," the management said in a release.

Analyst take:
“Operating profit increased by 610 basis points to 26 per cent due to reduction in cost/tonne, especially power and fuel cost. EBIDTA/tonne of the company registered a strong growth of 30 per cent to Rs 1,387/tonne. Volume registered a growth of 8 pet cent due to strong rural demand and pent-up demand. The company reported volume growth in the regions of North, Central, Gujarat and East. Whereas, volumes de-grew in the regions of South and Maharashtra. From an investment point of view, we are bullish on the company," said Keshav Lahoti - Associate Equity Analyst, Angel Broking.