The company consolidated revenue inclined 4% to Rs 9,620.47 crore for the second quarter ended September 2019, due to improvement in sales realization partially offset by weaker sales volume The consolidated sales volume (including overseas) eased 1% to 18.69 million tonnes (mt), while realization increased by 5.1% to Rs 5,147 per tonne.

Operating margin (OPM) increased by 460 bps to 19.9%, as drop in raw material cost by 90 bps to 13.4%, logistic expenses by 220 bps to 21.9%, and power & fuel expense by 350 bps to 20.3% as a percentage to sales and net of stock adjustments. As a result, the operating profit (OP) climbed up 35% to Rs 1,918.09 crore. Other income grew 8% to Rs 153.69 crore. Interest cost rose 22% to Rs 507.12 crore. Depreciation cost jumped 7% to Rs 668.42 crore. Thus, PBT before EO inclined 71% to Rs 896.24 crore.

The Company booked EO exceptional losses of Rs 6.16 crore in impairment of assets during the quarter. As a result, PBT after EO rose 70% to Rs 890.08 crore. The tax outgo was up by 86% to Rs 311.29 crore. The effective tax rate rose 290 bps to 35%.Thus, the PAT before MI and Share in Profit of Associates gained 63% to Rs 578.79 crore. After accounting loss of Rs 0.24 crore in Share in Profit of Associates and NIL in Minority interest, the Net Profit, as a result, grew by 63% to Rs 578.55 crore.

For half year ended September 2019, Sales of the company were up 12% to Rs 21,025.41 crore. OPM declined by 610 bps to 23.2%, thus, OP rose by 52% at Rs 4,867.91 crore. Other income advanced 30% to Rs 287.85 crore. After accounting for finance charges (up 27% to Rs 1,010.01 crore), depreciation (up 16% at Rs 1,356.80 crore), the PBT before EO inclined 90% to Rs 2,788.95 crore.

The Company booked EO expenses of Rs 6.16 crore in impairment of assets during the period as compared to Rs 113.88 crore EO expenses in stamp duty on asset acquired in business combination (Century Textile & Industries) corresponding previous quarter. As a result, PBT after EO zoomed 106% to Rs 2,782.79 crore.

The tax outgo was up by 125% to Rs 923.08 crore. The effective tax rate rose 280 bps to 33.2%.Thus, the PAT before MI and Share in Profit of Associates gained 98% to Rs 1,859.71 crore. After accounting gain of Rs 0.11 crore in Share in Profit of Associates and NIL in Minority interest, the Net Profit, as a result, grew by 98% to Rs 1,859.82 crore.

For the financial year ended March 2019 (FY 2019), total sales of the company were up 21% to Rs 37,379.20 crore. OPM declined by 170 bps to 18.2%, thus, the operating profit growth trimmed to 10% at Rs 6,788.13 crore. Other income dropped 26% to Rs 438.07 crore. After accounting for finance charges (up 25% to Rs 1,548.57 crore), depreciation (up 16% at Rs 2,139.80 crore), and tax expenses (up 3% to Rs 1,106.78 crore), the PAT before MI of the company rose 9% to Rs 2,431.05 crore. After accounting Share in Profit of Associates of Rs 0.56 crore and NIL Minority interest during period, Net Profit gained 9% to Rs 2,431.59 crore.

Scheme of Demerger: Acquisition of Century's Cement Business

UltraTech completed the acquisition of Century's cement business, with the Scheme of Demerger becoming effective from 1st October, 2019. With this acquisition, UltraTech's cement manufacturing capacity stands augmented to 117.4 mtpa, including its overseas capacity. This makes UltraTech the 3rd largest cement company in the world, outside of China. It is also the only company in the world to have a capacity of over 100 million tons in a single country, outside of China.  

UltraTech has allotted 13,961,960 equity shares of Rs.10/- each to shareholders of Century as on 14th October, 2019, being the Record Date fixed by Century in terms of the Scheme. 

The National Company Law Tribunal, Mumbai Bench, while sanctioning the Scheme has fixed 20th May, 2018 as the Appointed Date. Consequently, the Company's financials have been restated from that date, to include the financials of the acquired Century cement business. 

The quarter witnessed depressed cement demand, on account of the extended monsoons and heavy floods in almost all parts of the country. The situation was more aggravated in Eastern and Central India, where Century's cement plants are located. These plants had also undertaken major planned annual shut downs during the period. All of these factors impacted the performance of the acquired cement plants of Century. UltraTech's pan India presence enabled it to take advantage of the favourable demand situation in the markets of North India. Given its vast experience in integrating acquired Units with its existing operations and bringing them up to its operating standards, the Company is focused on replicating the same for the acquired cement plants.

Corporate Developments

UltraTech Nathdwara Cement Limited 

With major overhauling of the plants and completion of quality upgradation, UltraTech Nathdwara Cement Limited is fully integrated with the UltraTech systems and processes. The plants have achieved optimal efficiencies. During this period major maintenance shutdown was undertaken by the Company resulting in higher costs and lower capacity utilisation. However, the Company has recorded a robust performance operating in the northern markets. It has broken even at PAT despite a higher interest burden.  

Acquisition in FY18

The 21.2 mtpa cement capacity acquired from Jaiprakash Associates in June, 2017 are operating in line with the existing plants of the Company and have achieved PBT break-even during the previous quarter. The Bara Grinding Unit is scheduled for commissioning during Q3-FY20.  

Capex

The Board at its meeting held today approved capex of Rs. 940 crore for making premium products with an increase in its grinding capacities in Bihar and West Bengal by 0.6 mtpa each and a new grinding unit of 2.2 million tons in Odisha. This will further strengthen the Company's position in the eastern markets. All the plants will be commissioned by January – March, 2021.

Outlook

On the basis of positive demand seen in North India in Q2 as many parts of North India were not impacted by heavy rains and floods, there is a good possibility of a normalized demand for cement going forward.  The Government's firm commitment to revive the economy and the thrust on infrastructure spending augur well for the growth of cement demand. The heavy rains in the country should also prove beneficial for the kharif crop, which should again help revive rural demand.  The company with its presence across all the zones in the country, is the best positioned to take advantage of the revival in cement demand, despite the anomalies that may get created in demand patterns in some parts of the country due to extraneous reasons.

The scrip closed trading at Rs 4,295.50 (21 October 2019) on the BSE.