UltraTech’s dismal Q2 results darken outlook on cement sector

UltraTech’s dismal Q2 results darken outlook on cement sector
22/10/2018 , by , in ALLIED

Ahead of its September quarter (Q2) earnings, UltraTech Cement Ltd was trading deep in the red on Friday. Taking cues from ACC Ltd’s unimpressive operating performance, the Street was visibly nervous about UltraTech results. And the fears of investors came true after the company’s earnings disappointed on all key fronts.

Standalone net profit at ₹390.80 crore slipped 9% year-on-year (y-o-y), missing analysts’ consensus estimate of ₹420.70 crore. While standalone revenue was up 21% y-o-y at ₹7,771.3 crore, it also fell short of expectations. The 21% y-o-y growth in cement volume at 15.1 million tonnes let down investors, as analysts were pencilling in a 23% growth.

Nearly 80% of UltraTech’s fuel mix comprises petroleum coke (petcoke), so margin compression was on the cards. However, operating margins were severely dented. They were not just impacted by high petcoke prices, but also by increased logistics cost and a depreciating rupee.

Punished for the poor show, the UltraTech stock slumped to a 52-week low of ₹3,525 intraday on the National Stock Exchange on Friday. Although the stock recovered, it ended the day in the red.

Even though Q2 has been seasonally lean for cement makers, of late the Street has not been gung-ho on this sector, given the multiple challenges.

While demand is slowly recovering, it continues to be driven by government spending on infrastructure. Demand from the housing segment, a significant contributor to overall cement demand, remains muted. Consequently, the sector’s capacity utilization remains low.

About admin