UltraTech 3Q net profit rises 93% on improved demand

India’s largest cement producer, UltraTech Cement, reported a 93 per cent rise in 3QFY12 net profit thanks to a double-digit rise in cement demand but energy costs continue to weigh on the company's margins. However, the company says it is on-track with its expansion programme, namely two clinker plants which will raise capacity by 92Mta in just over a year's time.

The Aditya Birla Group company reported that net sales rose 23 per cent to INR4572 crores compared to INR3715 in the corresponding period of the previous year. Net profit rose 93 per cent to INR617 crore compared INR319 crore in 3QFY11.

Domestic grey cement and clinker sales reached 9.71Mt compared to 9.16Mt in the previous year as the third quarter saw a 10 per cent rise in demand from a low base. The company noted that the sector’s capacity utilisation improved to 73 per cent in the 3Q compared to 68 per cent in the preceding quarter. Although prices showed some improvement post-monsoon, the uncertain pricing scenario is expected to continue, UltraTech said.

However, the company’s variable costs increased by 16 per cent mainly due to rising energy expenses. This is attributable to a 30 per cent rise in domestic coal prices by Coal India during 4QFY11, a continuous spike in the prices of imported coal as well as the devaluation of the rupee by approximately 14 per cent. Energy costs are expected to continue escalating with the change in pricing mechanism from Useful Heat Value (UHV) to Gross Calorific Value (GCV) implemented by Coal India with effect from 1 January 2012. All these will put pressure on the company’s margins, UltraTech said.

In terms of the domestic outlook the company sees an improvement in demand but surplus capacity issues are likely to persist: “Demand is likely to grow around eight per cent. However, the surplus scenario is likely to continue over the next three years. At the same time, growing input costs will result in a squeeze in margins,” it said in a statement.

UltraTech has a capital outlay of over INR11,000 crores to be spent on various projects including clinker plants through brownfield expansion at Chhattisgarh and Karnataka. The progress of these plants is continuing on schedule and they are expected to be completed by 1QFY14. This will increase the company’s capacity by 9.2Mta bringing total volumes to 59Mta. Other projects include installing additional grinding units, waste heat recovery systems, bulk packaging terminals and the establishment of ready-mix concrete plants.