UltraTech has the edge with capex, price hike signal | Economic Times

ET Intelligence Group: For any cement company, rising fuel costs remain a major challenge. That's because fuels of every type - coal or motor fuel - make up the biggest cost pie.UltraTech, India's cement leader, told analysts after the earnings call that it is geared to overcome challenges posed by rising input prices - and to effect one of its own.The management said it will increase cement prices in the coming months as the cost of production increases in tandem with rising fuel prices. It has already increased cement prices by ₹10-15 in the first week of October. UltraTech said this increase has been accepted without much resistance from buyers. Buyers know that further price increase is "imminent" and they are prepared for it, UltraTech executives said.It has been prudent enough to deal with volatilities in fuel prices by inking long-term fixed-price fuel contracts. It will increase its Waste Heat Recovery Systems (WHRS) capacity. It will also rely on the blending of fuel and alternative fuel to reduce its fuel expenses. These measures, analysts cite, are distinct advantages the company has over its peers. This allays concerns over the impact of rising fuel expenses on its earnings. 87125906For the remaining part of the present fiscal, the company estimates growth in cement demand to be in the range of 6-8%. It cited a few factors which will maintain momentum in demand in the coming quarters. These are: revival in the urban housing segment, rural income, good monsoon, increasing construction activities related to infrastructure projects of the state and central governments and commercial construction demand from IT players in southern states such as Karnataka, Andhra Pradesh and Tamil Nadu.In the September quarter, the company's revenue grew by 14% year-on-year to Rs 11,743 crore. This was slightly below Bloomberg's consensus of analysts' revenue estimate of Rs 11,758.6 crore. Prolonged monsoon, increasing fuel prices and intense competition capped the company's ability to increase its revenues in the quarter under review. But a key parameter on which the company has scored well is cost management. Thanks to its low interest expenses, earnings did not fall. Its net profit grew at a meagre 0.3% year-on-year to Rs 1,314 crore during the quarter .For FY22, the company has earmarked a capital expenditure of Rs 4,000-5,000 crore of which it has invested Rs 2,000-2,500 crore from internal accruals. As the industry is in the second half of the fiscal year in which demand is strong, UltraTech can benefit immensely with well-timed expansions.On the valuation front, considering its one-year forward earnings, the stock of UltraTech Cement is trading at an EV/EBIDTA of 16.4. This is slightly higher than its past three-year average of 15.9. This may expand given its size, scale and capital expenditure.