UltraTech Cement - Fuel Price Cut Benefits Yet to Kick-In; Result Update Q3FY15 :: Edelweiss

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UltraTech Cement’s (UTCL) EBIDTA of INR9.6bn (up 20% YoY) was below our INR10.9bn estimate due to poor realisations (down 3.5% QoQ versus our 2.0% estimate) and high costs. Freight cost/t, though down 4% QoQ, was higher than expected due to adverse change in freight mix (in favour of road due to non-availability of railway rakes) and with full benefits of diesel price cuts yet to kick in. We, however, remain optimistic on accrual of fuel price cut benefits in ensuing quarters. Current all-India cement prices are already up ~6% versus Q3FY15 and with expectation of demand uptick, we estimate them to remain firm going ahead. With industry utilisations set to turn positive in FY17, we maintain our positive view on the cement sector and also on UTCL. While we maintain our FY16 and FY17 estimates, we revise down FY15 EBITDA estimate ~4% factoring in the Q3FY15 disappointment

Costs disappoint, but improvement expected 

Grey cement volume at 10.7mt (up 8% YoY) was 2% below estimate, while the realisation dip of 3.5% QoQ was higher than our 2.0% estimate. However, the real disappointment came from freight cost/t, which though fell 4% QoQ, was above estimate. This cost was abnormally high in Q2FY15 (up 9% QoQ) due to unplanned shutdown at a large plant in North requiring material movement from other plants. While we were assuming the cost to normalise, it was affected in Q3FY15 with adverse change in the freight mix in favour of road (from 63% to 70%) due to non-availability of rakes and also with benefits of fuel price cuts yet to kick-in. We remain optimistic and expect the cost to dip further in coming quarters. With low other income (down 52% YoY) and high tax rate of 35%, PAT at INR3.6bn was lower than our INR5.0bn estimate.

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https://www.edelweiss.in/research/UltraTech-Cement--Fuel-Price-Cut-Benefits-Yet-to-Kick-In;-Result-Update-Q3FY15/28115.html