UltraTech Posts 3rd Quarter Results

UltraTech Prices

Aditya Birla Group Company UltraTech Cement has reported for Q3 0f 2018 a 11 % drop in net profit at Rs.376 crore against Rs.424 crore reported in the same period last year, against a sharp increase in operational cost.
Net sales were up 20 % at Rs.8,111 crore (Rs.6,752 crore) over the previous year. Domestic sales volume jumped 21 %.
Rising energy and logistics cost coupled with rupee depreciation pushed up operational expenses by 14 %, pulling down profits despite higher sales volume.

With no letup on from high energy prices and rupee depreciation in sight, the cement major may continue to face price pressure and will not be able to pass on the cost increase to customers. Supply is expected to continue to outstrip demand some time, according to cement industry insiders which was earlier highlighted by the Indian Cement Industry body the CMA.

Other Highlights:
Capacity utilization fell to 65 percent from 73 percent in the June quarter.
Sales volume stood at 15.7 million tonnes compared to an estimated 16 million tonnes.
The company’s acquisition of Century Cement is subject to shareholders and regulatory approvals.
Realization per tonne rose 1.1 percent to Rs 5,004.
Ebitda per tonne was down 20 percent to Rs 824.

The share markets reacted to the results and UltraTech share prices fell after release of these results.

Cement Price Rise

Cement Prices To Rise

According to senior officials of the Indian Cement Industry body the CMA, cement prices are expected to rise by up to 10 percent in the next six months to compensate for the increased fuel and transportation costs. In the last one year there has been a 60-70 % rise in cost of fuel.

According to the same sources, the Indian cement industry has witnessed a 14 % growth in the first half of the year ended March 2019, the first double digit growth since nearly nine fiscals ago, thereby providing an opportunity for the correction of prices which have remained stagnant in the last 6-7 years.

Cement industry insiders gave a point by point argument for the likely rise in cement prices:

1. In the last one year we have seen 60-70 percent rise in cost of fuel.
2. Cement cost and normal inflation are much more than the pricing that what the cement companies have been able to raise.
3. There is a very dire need to correct the pricing to at least recover some portion of this cement cost and inflation increase.
4. There is surplus capacity in the cement industry but no pricing power.
5. Cement companies are selling a cement bag practically at the same price that was prevailing in 2011-12.
6. Just for recovering the fuel and transportation charges, that will call for a minimum of Rs 25-30 per bag, which is about 8-10 percent increase in prices, which will bring the cement industry at the level where they were last year in terms of operating margins.

On a related note, of the 500 million tonne capacity available in the industry, only 300 MT is utilized at the moment. The health of the cement industry isn't as good as expected and a lot of units have been put on the block. It indicates the margins are not very healthy.
This is expected to  continue for a while till such time the prices are corrected. More cement companies can be expected to go for insolvency proceedings if cement prices are not corrected and unhealthy margins remain.

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