UltraTech Cement - One-Off Costs Offset Realisation Gains :: Edelweiss, PDF link

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UltraTech Cement’s (UTCL) Q2FY15 EBIDTA of INR8.8bn was ~4% below our estimate despite positive surprise on realisations (which rose ~4% QoQ versus our 2% estimate). The disappointment was due to ~8% QoQ surge in variable cost (raw material, energy and freight) largely on account of ~40 days’ shutdown at one of its plant in North leading to purchase of clinker from the open market and sourcing cement from its other plants to maintain market share. Energy cost was high due to maintenance shut downs during the monsoon quarter. With production across plants resuming normalcy, the cost impact too is slated to ease in the coming quarters and may, in fact, dip further with the recent ~6% decline in diesel costs and a potential similar drop in rail freight in Q4FY15. Q2FY15 was the first full quarter post the formal acquisition of 4.8mtpa JPA’s Gujarat assets. Incorporating the acquisition effect, H1FY15 performance so far and the estimated cost changes going ahead, our EBITDA estimates are being revised down ~5% for FY15 and up ~4% for FY16. Target price of INR2,613 remains unchanged as we were already incorporating the acquisition in our working earlier.

One-off cost offsets realisation and volume growth 

Cement volume growth of ~11% YoY (~6% excluding JPA Gujarat) was in line. Realisation growth of ~4% was higher than our ~2% estimate. However, variable costs surged ~8% QoQ largely due to 40 days’ shutdown at a 3.3mtpa clinker plant in North. The said plant has resumed operations, leading to normalisation of costs going ahead.     

Low tax rate leads to PAT beat

Depreciation and interest costs were in line. However, low effective tax rate of 19% (due to reversal of excess provision in Q1FY15) led to PAT being 9% above estimate.

LINK

https://www.edelweiss.in/research/UltraTech-Cement--One-Off-Costs-Offset-Realisation-Gains;-Result-Update-Q2FY15/27311.html