Fierce competition eats into UltraTech’s second-quarter net profit

MUMBAI: Fierce competition in India’s cement industry has eroded profits at the country’s largest construction materials maker, with UltraTech Cement’s profits falling by more than a third in July-September.

The company reported consolidated profit of $8.2 billion, down 36% year-on-year. Comprehensive revenue fell 2% $15,635 Crores.

This was despite its consolidated sales volume rising 4% year-on-year to just under 28 million tons.

Financial decline

The decline in the company’s financial position was due to lower realizations. Domestic gray cement realization volume fell by 8% year-on-year $US$4,901 per ton this quarter. Domestic gray cement accounts for 92% of UltraTech’s sales.

Subsequently, earnings before interest, taxes, depreciation and amortization (Ebitda) fell 21% year-on-year to $2019 Crores. Ebitda margin fell three percentage points to 12.9%.

The country’s two largest cement manufacturers – UltraTech and Adani Group – are aggressively increasing production capacity. They are also aggressively consolidating the industry by acquiring smaller peers.

“The scale of the capacity expansion is unprecedented in the global cement industry,” UltraTech said in a press statement.

With the completion of the company’s ongoing expansion projects across India and statutory approvals for the acquisition of Kesoram Cement (10.75 MTPA) and The India Cements (14.45 MTPA), UltraTech’s total cement production capacity will be over 200MTPA.

“The expanded manufacturing footprint will help reduce operating costs and improve customer service by leveraging the company’s strong nationwide presence and its distribution network. More importantly, this scale will further enable UltraTech to cater to growing growth across India demand for cement, strengthening UltraTech’s contribution to national development,” the company said.

During the quarter, the company raised $500 million through sustainability-related loans with participation from six banks. This is the company’s second sustainability-related financing, following the issuance of sustainability-related bonds in 2021.

Ritesh Shah, head of mid-market coverage and ESG at Investec Capital Services India, said: “Sluggish industry demand coupled with surging supply has taken a toll on UltraTech’s profitability. We expect consensus earnings to continue facing downgrades.”

Going forward, the company said its capacity expansion leverages the long-term growth potential of the Indian cement industry.

“By expanding its scale, the company will meet the growing demand for cement across the country,” the company said.

The company expects rising government spending on infrastructure and increasing urban housing demand to lead to 7-8% sales growth in the next few years.

“UltraTech aims to lay the foundation for the infrastructure that will shape modern India and make a meaningful contribution to the progress of the country,” the report said.

During the quarter, the company also launched an 8-MW waste heat recovery system. This brings UltraTech’s total waste heat recovery capacity to 308 MW.

During the quarter, green power, including waste heat recovery and renewable energy, accounted for 32% of the company’s power mix.