A sluggish demand environment and lower selling price weighed heavily on India?s largest cement company, UltraTech Cement, as its net profit more than halved to R264 crore for the quarter ended September 30, 2013, against R550 crore in the year-ago period.
The Aditya Birla Group company said in a statement on Saturday that it reported a dip of 4.2% in net sales at R4,502 crore, against R4,699 crore in the same period a year ago. Consequently, total Q2 income was also lower by 4.4% at R4,522 crore, against R4,729 crore last year.
?The results for the quarter have been impacted mainly on account of lower selling prices and subdued demand. Cement demand remained sluggish due to prolonged monsoon,? the company said.
The combined domestic cement and clinker sales remained flat at 9.1 mt, while for white cement and wall care putty, the sales increased to 2.75 mt from 2.39 mt in the corresponding quarter. The company?s total expenses for the three months from July to September 2013, increased by 4.4% to nearly R4,100 crore, against R3,927 crore in the same period last year, mainly on account of lower power and fuel expenses. The power and fuel expenses saw a sharp decline of 11% to R957 crore due to softening in imported coal prices and optimisation of the fuel mix which helped in curbing power and fuel costs.
However, UltraTech said that the benefit of softening of prices of imported fuel was negated by the devaluation of the rupee. ?Logistics and and raw material costs continued to rise given the high diesel prices,? the company said.
UltraTech said its capital expenditure plans were on schedule. It commissioned a 25-MW TPP at Rajashree Cement in Karnataka. Its 1.6-mtpa cement mill at Jharsuguda in Orissa went on stream in October 2013.
During the quarter, the company also announced one of the largest M&A deals of recent times with the acquisition of Jaypee Cement Corporation?s Gujarat unit for R3,800 crore.
The company said that acquisition will be funded through equity of R150 crore, debt worth R2,000 crore and the remainder of R1,650 crore through internal accruals. Jaypee Cement had R350 crore of carry-forward losses.
The deal is expected to be completed in the next seven to nine months, which will further cement UltraTech?s number one position in the market as the acquisition of 4.8 mt capacity will increase the installed capacity of UltraTech cement to 59 million tonne per annum (mtpa), which will go up to 70 mt by 2015.
The acquisition will also give UltraTech an entry into Gujarat. The acquisition comprises an integrated cement unit at Sewagram and a grinding unit at Wanakbori in Gujarat. The combined capacity of both the divisions of the Gujarat unit is 4.8 mtpa with a 57.5 MW coal-based thermal power plant, limestone reserves for over 90 years at current capacity and a captive jetty at Sewagram.
However, the company has sounded a word of caution during the second quarter performance as it said that the ?outlook continues to remain challenging?.
It pegged the demand growth in the 2013-2014 fiscal at around 5%, but in the long term, it is likely to be over 8% with housing and infrastructure spends continuing to be key drivers.
