Timed To Perfection

UltraTech Cement promoter entity cashes in on the euphoria around cement stocks

Vishal Koul

UltraTech Cement, the country’s largest grey cement producer, has been on a roll. Over the past five quarters, the stock has gained 41% and its year-to-date performance, too, has been an impressive 21.6%, based on the August 2 closing price of Rs.4089.65. Incidentally, in course of the rally, the Kumar Mangalam Birla group-owned entity has seen its promoter offloading a fraction of the overall holding in the open market. In CY17, promoter entity, Turquoise Investment and Finance, offloaded around 3.05 lakh shares, worth Rs.124 crore, thus bringing down its holding to 0.17%. The latest selloff happened on July 24, when the entity sold 23,000 shares, worth Rs.9.6 crore, in the open market.

In fact, since March 2016, the entity has sold close to 14 lakh shares, cumulatively worth Rs.469 crore. As a result, the overall promoter group’s holding has declined from 62.50% in March 2016 to 62.27% in June 2017. Over the same period, while domestic mutual fund houses reduced their stake from 3.9% to 2.55%, foreign portfolio investors (FPI) increased their stake from 19.64% to 21.89%. Among FPIs, Oppenheimer Developing Markets Fund increased its stake to 1.45% from 1.41%, while Europacific Growth Fund held 1.37% stake. Among domestic institutions, Life Insurance Corporation has marginally increased its stake to 2.2% from 2.15%.

UltraTech Cement’s net sales have shown a CAGR of 5.7% between FY12-FY17, while PAT clocked a 2.5% CAGR over the same period. The acquisition of Jaiprakash Associates too has bolstered its clinker capacity and, thereby, increased the company’s market share to 21%. Analysts suggest the acquired assets will break even by 1HFY20.

Though a sluggish demand coupled with demonetisation resulted in muted growth in FY17, the management expects the impact of implementation of GST, RERA and focus on affordable housing to bump up revenues in the current year. Though the GST is a pass through, UltraTech expects the overall tax implication on the sector to come down to 28% from the current level of 30-32%.

According to India Ratings and Research, affordable housing and increased budgetary allocation towards roads and highways alone will spur the cement sector’s growth by 4-5% in FY18. Not surprising that UltraTech Cement has shown a 15% jump in consolidated net profit in the first quarter to Rs.898 crore against Rs.780 crore logged in same period last year, on the back of better realisation and higher volume.