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UltraTech Cement’s profit drops 42% yoy to ₹756 crore due to higher energy and raw material costs

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  • India’s largest cement producer, UltraTech Cement, today reported a 16% increase in second quarter sales to ₹13,893 crore.
  • Rising energy and raw material costs were the main factors behind the halving of the company’s net margin to 5.4% from 10.9% a year ago.
  • Despite this, UltraTech says a rebound in demand is imminent, with signs beginning to be seen in September.

India’s largest cement producer, UltraTech Cement, fell 42% from a year ago to ₹756 crore in the second quarter, due to high power and input costs.

However, sales increased 16% to 13,893 crore, from 12,017 crore in the same quarter a year ago. While the revenue increase is in line with analyst estimates, the decline in earnings was much lower than expected.

The company said rising power and raw material costs also halved net margins from 10.9% in Q2 FY22 to 5.4%.

According to the company, electricity costs increased by 58% year-on-year, while raw material costs increased by more than 18% during this period. Transportation, another major expense for the company, saw a 14% increase.

Despite the pressure on margins, the cement producer remains positive about the future prospects.

“Given the government’s focus on infrastructure spending and affordable housing, the long-term growth potential of the cement sector remains healthy. A revival in demand is imminent, especially during the holiday season and the peak construction period from January to March,” the company said in its grant application.

The September quarter is generally considered a slow quarter for the cement industry. UltraTech Cement noted that while demand was weak in July and August, there were signs of rebound in September.

“The increase in retail demand was due to pent-up demand accumulation during the monsoons, pre-Diwali building and repair work gaining momentum and tailwinds from the election. Institutional demand was led by increased construction activity after the waning monsoons,” the company added.

The company’s shares rose nearly 1% after the results were announced.

Here’s UltraTech Cement’s Q2 in numbers:

Particularities Q2 FY23 Q1 FY23 Q2 FY22
Revenue ₹13,893 crores ₹15,164 crores ₹12.017 crore
Net profit ₹756 crore ₹1,582 crore ₹1,314 crores
Net margin 5.4% 10.4% 10.9%

Source: Company Reports

UltraTech said it has improved its capacity utilization to 76% from 71% a year ago. It also witnessed a 9.6% increase in sales volume despite heavy monsoons during the September quarter.

Capacity expansion underway – debt rising over 50% sequentially

UltraTech Cement has a growth plan in place for 2020 and the company says it is on track to meet its goals by the end of FY23.

In the September quarter, UltraTech added 1.3 million tons of capacity per year (mtpa), bringing the total to 115.85 mtpa. It aims to add an additional 15.4 million tons per year in the second half of FY23, bringing total capacity to 131.25 million tons per year.

Beyond this, the company is also shedding light on the status of its second phase of growth, where it plans to add 22.6 million tons per year, bringing the total to 159.25 million tons per year in FY25.

As a result of capacity expansion, UltraTech’s debt rose sequentially by more than 50% to 8,357 crore from ₹5,561 crore in the previous quarter.

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