Intense competition eats into UltraTech’s Q2 net profit | Mint

Mumbai: The intense competition in India’s cement sector ate into the margins of the country’s largest maker of the building material, with UltraTech Cement’s profit for July-September declining by more than a third.

The company reported a consolidated profit of ₹820 crore, down 36% year-on-year (y-o-y). Consolidated revenue declined by 2% to ₹15,635 crore.

This, even as its consolidated sales volume increased 4% y-o-y to just under 28 million tonnes.

Fall in financials

The fall in the company’s financials was due to a decline in realizations. Domestic grey cement realizations were down 8% y-o-y to ₹4,901 per tonne during the quarter. Domestic grey cement accounts for 92% of the sales volume for UltraTech.

Subsequently, earnings before interest, tax, depreciation and amortization (Ebitda) fell by 21% y-o-y to ₹2,019 crore. Ebitda margin declined by three percentage points to 12.9%.

The country’s two largest cement makers—UltraTech and the Adani Group—are aggressively adding capacity. They are also aggressively consolidating the industry through the acquisition of smaller peers.

“The capacity expansion drive is on a scale that is globally unprecedented in the cement sector,” UltraTech said in a press statement.

With the completion of the company’s ongoing expansion projects across India and the receipt of statutory approvals for the acquisitions of Kesoram Cement (10.75 MTPA) and The India Cements (14.45 MTPA), UltraTech’s total cement capacity will surpass 200 MTPA by FY27, the company said.

“This expanded manufacturing footprint will help reduce operational costs, and improve customer service, leveraging the company’s strong nation-wide presence and its distribution network. More importantly, this scale will further enable UltraTech to service India’s growing demand for cement across the country, reinforcing UltraTech’s contribution to the nation’s development,” the company said.

During the quarter, the company raised $500 million through a sustainability-linked loan with participation from six banks. This was the second sustainability-linked financing for the company, after a sustainability-linked bond issuance in 2021.

“The industry’s lacklustre demand, coupled with supply bump took a toll on UltraTech’s profitability. We expect consensus earnings to continue facing downgrades,” said Ritesh Shah, head – Mid Market Coverage & ESG at Investec Capital Services India.

Looking ahead, the company said that its capacity expansion capitalises on the long-term growth potential of India’s cement sector.

“By increasing its scale, the company will meet the rising demand for cement nationwide,” the company said.

The company expects the increase in the government expenditure on the infrastructure sector and the rising demand from the urban housing sector to generate a volume growth of 7-8% in the coming years.

“UltraTech aims to make a meaningful contribution to the nation’s progress by laying the groundwork for infrastructure that shapes modern India,” it said.

During the quarter, the company also commenced 8 megawatts of waste heat recovery system. With this, UltraTech’s total WHRS capacity stands at 308 MW.

The share of green power, including WHRS and renewable energy, in the company’s power mix was 32% for the quarter.