The first wave of strong quarterly results has dispelled fears and soothed investors' nerves. From cement to pharma to banks, most cos have fared well on demand pick-up and cost rationalisation

RIDING on volume growth, the Aditya Birla Group-owned UltraTech Cement announced a better-than-expected result with a 58% rise in net profit at Rs 418 crore in the June quarter.

During the period, volumes grew 24% to touch 5.31 million tonne, while variable costs fell 7% on account of captive power generation and softening of imported coal prices. Net sales at Rs 1,953 crore was up 31% compared with Rs 1,496 crore for the first quarter of FY09. Cash profit at Rs 556 crore (Rs 388 crore) was higher 43%.

Raising concerns over upcoming additional capacity of 85 million tonne and margins being affected, the Aditya Birla Group chairman Kumar Mangalam Birla said: “Industry demand may grow at 9% for the year given the government initiatives to boost rural development, infrastructure and housing. New capacities, which are at various stages of commissioning, will inevitably result in the fall in capacity utilisation from the second half of the current fiscal and squeeze margins.”

Addressing the shareholders at the company's ninth AGM in Mumbai on Tuesday, he said there would be no big ticket acquisitions in the near term. According to him, UltraTech had a strong balance sheet with a debt-equity ratio of 0.59 and an interest cover of more than 10 times. UltraTech Cement will invest Rs 2,050 crore over the next three years, which will be funded through internal accruals. The company will enter newer markets and increase capacity.

Currently, its domestic volume at 4.65 million tonne (3.93 mt) registered a growth of 18%, while exports at 0.66 mt (0.34 mt) were up by 91%. Cement production at 4.52 mt (3.95 mt) was higher 14%, although effective capacity utilisation remained flat at 95% on expanded capacity. UltraTech senior executive president and CFO KC Birla told ET: “We will enter rural areas to offset the upcoming margin pressure due to additional capacity in the industry.”

The company's capacity stands augmented to 23.10 million tonne per annum (mtpa) upon commissioning of capacity at Andhra Pradesh Cement Works together with a split grinding unit in Karnataka. It has 236 mw of captive thermal power, catering to 80% of its power requirements. These initiatives for volume and efficiencies collectively involved a capex of around Rs 3,200 crore spent over the past few years.

Source :The Economic Times / 22nd July 2009