Aditya Birla Group-backed cement giant UltraTech Cement Ltd reported a 17 percent decline in its consolidated net profit for the October-December quarter to Rs 1,470 crore, but recovering demand from the infrastructure segment as well as from the rural markets, ensured that it beat market expectations. It sent the stock rallying, which made India's largest cement maker the top gainer on the benchmark Nifty50 index today.
A Moneycontrol poll of analysts estimated the company's consolidated bottomline to decline by 26 percent year-on-year to Rs 1,304 crore. Consolidated revenue from operations rose nearly 3 percent YoY to Rs 17,193 crore, ahead of the estimated Rs 16,696 crore.
In an investor presentation, the company said that its volumes in the quarter ending December 31 grew by 9 percent over the previous quarter to 28.10 million tonne per annum (MTPA), with trade sales growing by 12.5 percent on a year-on-year basis. Rural sales volumes grew by 13 percent on a year-on-year basis, even as the company's chief financial officer Atul Daga conceded in a post-earnings call that demand from the urban housing segment was "slightly slow" during the quarter.
Analysts say that sluggish demand in cement from urban real estate projects is consistent with the same for other building materials as well, such as paints, during the October-December quarter. The decline has been attributed to the affordable housing sector, offtake of which has declined over the past two years in the major real estate markets, with large developers retreating from the affordable ticket size.
Daga also noted that the Union government's capital expenditure, which includes major infrastructure projects such as roads, was down by around 12 percent year-on-year in April-November 2024, with capital expenditure by state governments also being on the slow lane over the same period. However, he also added that demand momentum is on its way back, owing to back-ended capital expenditure by the union government in the ongoing financial year.
Breaking down the company's performance territorially, Daga said that its northern and western markets performed the best, while growth in the southern and eastern markets was relatively weaker. In southern India, adverse weather events such as the cyclone Fengal affected demand across states such as Andhra Pradesh, Telangana, and Tamil Nadu.
CFO Daga said during the earnings call that exit prices in December were only around 1 percent higher than that of the average prices in the July-September quarter, adding, however, that prices are expected to inch up as demand continues to increase.
Lack in pricing growth has been a bane for the industry since 2023, with the same continuing for the reporting quarter as well. Cement prices were flat in October and November due to the festive period in many states, as well as unseasonal rains, and lesser-than-expected demand from infrastructure projects, with an improvement in the demand picture driving prices upwards by around Rs 5-10 per 50 kg bag to Rs 350-400 in December.
Sluggish pricing has also been reflected in UltraTech's key operational metrics for the quarter on a year-on-year basis. The company's grey cement realisation declined by 9.6 percent year-on-year to Rs 4,970 per tonne, even as it improved by 1.4 percent over the July-September quarter. Consolidated earnings before interest, taxes, depreciation, and amortisation (EBITDA) declined 8 percent YoY to Rs 3,131 crore, although operating EBITDA per tonne for domestic grey cement improved sequentially to Rs 964.
Mega consolidation moves forward
With unprecedented consolidation in southern India's cement market, Daga said that with its acquisitions of India Cements and the cement arm of Kesoram Industries, it is slated to have a capacity share of 30 percent in southern states. Q3 was UltraTech's first quarter with India Cements as part of its consolidated operations, albeit for just the last week of the quarter.
The company said in the investor presentation that UltraTech bought India Cements at an enterprise value of around $98 per tonne. During the earnings call, Daga said that UltraTech's management will decide on the quantum capital expenditure required to bring the new acquisition up to speed, with around a year needed for the same.
Daga said that the company's aim regarding the India Cements acquisition has been to bring the 14.45 million tonne per annum (MTPA) capacity of the firm in sync with the rest of the company. This, Daga added, includes improving on India Cements' current below-par capacity utilisation of 57 percent, brownfield expansions in capacity, selling of non-core assets such as vacant and unusable land, and implementing energy efficiency measures such as waste heat recovery system (WHRS).
For its earlier acquisition in southern markets, Kesoram Industries' cement operations, the management said that it is waiting for permissions from the states of Telangana and Karnataka regarding the transfer of mines held by Kesoram. Daga said that it expects a capital expenditure of around Rs 400-500 crore to improve efficiencies there.
As for the popular brands marketed by both India Cements and Kesoram, Daga told investors that even as it expects brand transition to "happen at the right time", the company is in no rush to unify the brands under UltraTech. India Cements markets its products under the Coromandel Cement brand, while Kesoram's brands include Birla Shakti.
Daga referred to UltraTech's 8.42 percent stake acquisition of north-east based cement maker Star Cement as a non-controlling financial investment, intended to "understand the market". UltraTech's largest competitor, Adani Cement, had also made a play to purchase Star Cement.
Organic capex
Besides its inorganic expansion drive, the company is going ahead with its sizeable in-house greenfield and brownfield planned increases in capacity. By the end of FY25, UltraTech Cement is scheduled to have an in-house capacity of nearly 157 MTPA, excluding additions from India Cements and Kesoram. Daga said that for each of FY25 and FY26, UltraTech has outlined a capital expenditure of Rs 9,000 crore, with new capacity additions across most geographies.
Other than cement grinding capacity, the company is also planning to add around 3.35 MTPA of clinker capacity in the ongoing quarter, followed by around 10 MTPA of clinker capacity in FY26, Daga told investors.
UltraTech's shares closed 6.7 percent higher on the National Stock Exchange on January 23, at Rs 11,406.95.
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