Strong foundation

UltraTech, with its pan-India presence, is likely to benefit from any pick-up in demand

Rajesh Naidu
The Economic Times
21 January 2014

Mumbai: UltraTech Cement continues to be a leader in the industry with the widest geographical presence, a light balance sheet and highest capacity. It has its eye on the long term with policies that enhance growth and ensure profitability.

Cement demand has been subdued of late, as the overall economic sentiment has been unfavourable - growth slumped to a decade-low 5 per cent of the GDP in the last fiscal year. This has resulted in surplus capacity and pressure on prices, forcing large companies to grapple with rising cost, slowing volume growth and stressed balance sheets.

Being the market leader, UltraTech has not had it as tough as its rivals. Besides, it has also sought to reduce costs by working towards self-sufficiency in power. This is reflected in its financial performance. In the last three years, its consolidated sales have grown at a CAGR of 24.3 per cent, while those of peers ACC and Ambuja Cement have grown at 16 per cent and 14 per cent, respectively. UltraTech's operating profit has grown by 33 per cent, ACC's has grown by 1.5 per cent and Ambuja Cement's by 7.3 per cent.

Kumar Mangalam Birla, the chairman of UltraTech Cement, said the company's strategy has paid off. "Initiatives such as captive power plants and investment in infrastructure to get closer to our customers have led to economies of scale and higher efficiency. Today, we are the lowest cost producers among pan-India players," he said in an email interview. The benefits of these measures also reflect in the company's operating profit before depreciation on a per tonne basis, which was around Rs1,090 in FY13; for ACC and Ambuja Cement, this was Rs771 and Rs1,040, respectively.

UltraTech last year acquired Jaiprakash Associates' Gujarat cement plant to expand reach in the western region and increase capacity by around 4.9MT to 60MT. The net debt to equity ratio rose to 0.39 from the pre-acquisition levels of 0.16, but this should not put any strain on the balance sheet given the size and width of the company's operations.