UltraTech Cement (ULTC.BO)
1QFY14 – Volumes on a Weak Trajectory
1Q PAT inline — ULTC’s 1QFY14 PAT fell 14% yoy to Rs6.7bn (in line with our
estimates) on a yoy decline in volumes (cement + clinker) and realizations; and higher
costs. PAT would have been lower but for the surge (>2x) in other income to Rs1.9bn.
ULTC’s EBITDA/t fell to ~Rs1,040 from Rs1,250 last year and Rs1,080 in 4QFY13.
ULTC loses market share — 1Q sales (cement + clinker) fell 2% yoy to 10.1mt.
Domestic volumes fell 1% to 9.9mt vs. India’s demand growth of ~3-4% during the
quarter (industry sources). ULTC’s volumes would have been particularly weak in
May/June as it had reported >10% volume growth in Apr13. ULTC’s overall capacity
utilization in 1QFY14 was ~79% (on FY13 exit capacity). ULTC’s markets: North 30%,
West 30%, South 20%, East 20%.
Realizations fall yoy — ULTC’s avg. realizations fell ~2% yoy – conversations with
dealers suggest prices declined almost across India (yoy) in 1Q. On a sequential basis,
ULTC’s realizations were marginally higher (+1.5%). Prices have been largely stable
across regions since June13; except Calcutta (East) where prices have fallen ~10%;
Hyderabad (South) where producers have hiked prices by ~7% by restricting supply.
Costs (per tonne) up 5% yoy — Hikes were seen mainly in raw material per tonne
(+6%) and freight per tonne (+8%) impacted by higher rail freight/diesel prices. Power
costs fell 7% yoy (lower imported coal/pet coke costs; higher pet coke usage). Imports
accounted for ~20% of ULTC’s coal consumption; pet coke 25-30%.
Demand is key; maintain Sell – Production discipline is unlikely to sustain post the
monsoon: 1) Expect >22mt of capacity in FY14 (on a base of 350mt, +27mt in FY13) –
with weak demand the struggle for market share will continue; 2) The Competition
Appellate Tribunal’s order to deposit 10% of the penalty imposed by the CCI does not
help the cement producers’ case. For pricing to track a sustained upward trajectory,
demand would need to recover. At an EV/t of $164 (Sep14, 57mt capacity); ULTC
appears expensive.
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1QFY14 – Volumes on a Weak Trajectory
1Q PAT inline — ULTC’s 1QFY14 PAT fell 14% yoy to Rs6.7bn (in line with our
estimates) on a yoy decline in volumes (cement + clinker) and realizations; and higher
costs. PAT would have been lower but for the surge (>2x) in other income to Rs1.9bn.
ULTC’s EBITDA/t fell to ~Rs1,040 from Rs1,250 last year and Rs1,080 in 4QFY13.
ULTC loses market share — 1Q sales (cement + clinker) fell 2% yoy to 10.1mt.
Domestic volumes fell 1% to 9.9mt vs. India’s demand growth of ~3-4% during the
quarter (industry sources). ULTC’s volumes would have been particularly weak in
May/June as it had reported >10% volume growth in Apr13. ULTC’s overall capacity
utilization in 1QFY14 was ~79% (on FY13 exit capacity). ULTC’s markets: North 30%,
West 30%, South 20%, East 20%.
Realizations fall yoy — ULTC’s avg. realizations fell ~2% yoy – conversations with
dealers suggest prices declined almost across India (yoy) in 1Q. On a sequential basis,
ULTC’s realizations were marginally higher (+1.5%). Prices have been largely stable
across regions since June13; except Calcutta (East) where prices have fallen ~10%;
Hyderabad (South) where producers have hiked prices by ~7% by restricting supply.
Costs (per tonne) up 5% yoy — Hikes were seen mainly in raw material per tonne
(+6%) and freight per tonne (+8%) impacted by higher rail freight/diesel prices. Power
costs fell 7% yoy (lower imported coal/pet coke costs; higher pet coke usage). Imports
accounted for ~20% of ULTC’s coal consumption; pet coke 25-30%.
Demand is key; maintain Sell – Production discipline is unlikely to sustain post the
monsoon: 1) Expect >22mt of capacity in FY14 (on a base of 350mt, +27mt in FY13) –
with weak demand the struggle for market share will continue; 2) The Competition
Appellate Tribunal’s order to deposit 10% of the penalty imposed by the CCI does not
help the cement producers’ case. For pricing to track a sustained upward trajectory,
demand would need to recover. At an EV/t of $164 (Sep14, 57mt capacity); ULTC
appears expensive.
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