The UltraTech Cement stock surged more than 7 per cent on Tuesday, following better-than-expected results in the June quarter. While sale volumes were severely impacted by the lockdown restrictions during most part of the quarter, continuing cost savings, helped the operating margins inch up to 31 per cent, compared to 27 per cent in the corresponding quarter last year.

Despite a 29 per cent y-o-y drop in adjusted consolidated net profit, investors cheered, as the net profit beat analyst estimates. The company reported a consolidated net profit of ₹797 crore for the quarter, after recording an exceptional loss of ₹157.4 crore, on account of a pending litigation.

Volumes impacted

The company reported a 22 per cent y-o-y drop in consolidated sale volumes to 14.65 million tonnes in the June quarter. But this fall does not take into account Century’s numbers in the June 2019 quarter. Including this, a sharper volume drop of 32 per cent (y-o-y) was recorded on domestic sales alone.

That said, the volume numbers should be seen in the light of the company being able to operate only for 68 days during the quarter ending June.

Amid weak demand for cement, the company’s sales volume came predominantly from retail segments — mostly from rural and semi-urban pockets. Through increased penetration, retail sale volumes inched up by 13 per cent y-o-y during the quarter.

While cement prices remained buoyant throughout the quarter, across the country, the company witnessed a 2 per cent y-o-y dip in realisations (per tonne). This was a result of lower share of institutional sales in the sales mix.

However, with continuing savings on costs front — energy, logistics and raw material cost per tonne were down by 11, 5 and 2 per cent respectively — the EBITDA increased 12 per cent y-o-y to ₹1,651 per tonne.

Other expenses declined 39 per cent y-o-y, on account of savings on travel and ad spends. A portion of the drop can also be attributed to lower packaging costs due to lower sale volumes.

Outlook

With the onset of monsoons, a revival in cement demand may be unlikely in the next few quarters. The management in the earnings con-call highlighted that this could be further aggravated by the ongoing sporadic lockdowns in most parts of the country. Also, channel check reports indicate that, with the story of pent up demand having played out in the first quarter of FY21, cement prices are expected to correct 4-5 per cent sequentially in July . That said, continuing cost savings and efficient working capital management could be the saving grace for the company in the upcoming quarters.

The company managed to cut down its debt by ₹2,209 crore in the June quarter. Following this, the net debt to EBITDA dropped to 1.44 times compared to 2.24 times in corresponding quarter last year.(1.55 times in March 2020 quarter)

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