Ultratech Cements – Margin Pressures Due to Costs

Ultratech Cement’s PAT came in at Rs2.8bn,up 22% yoy, but 9% below estimates. While realizations grew in-line with our estimates, costs came in higher. As a result, 4Q EBITDA margins at 30.5% were up only 90bps yoy but down 340bps qoq. FY08 PAT rose 29% to Rs10bn.

Given capacity constraints, ULTC’s cement volumes have remained flattish for both 4Q (4.2mt) and FY08 (15mt). There has been an increasing focus on domestic markets, with cement exports falling 39% in 4Q and 43% in FY08. Realizations have grown 11% yoy
both in 4Q and FY08; however, prices in 4Q were flat qoq in ULTC’s markets.

Rising costs have been the key factor in keeping margins muted during 4Q. Key pressure areas were raw materials, wages and power & fuel costs. The Indian Real Estate Developers have alleged lobby by Cement and Steel companies and the Government’s move to BAN cement exports with immediate effect to bring soaring inflation will impact Ultratech.