Cement industry has been one of the prime beneficiaries of the fast growing Indian economy over the past 4-5 years. The demand for cement in India, second largest in the world, has been strong from all corners as the Indian government is spending big money for improvement in infrastructure. Companies across sectors are setting up new projects for expanding capacities and housing sector has been growing phenomenally.

The conducive economic environment has enabled UltraTech Cement Ltd., the second largest cement manufacturer of India and 52.4% owned by diversified Aditya Birla Group company, Grasim Industries Ltd, to deliver a strong set of numbers in its quarterly results for the third quarter of fiscal year 2006-07 (the months of October-December 2006 - Q3FY07).

Net sales during the quarter at $283 million (Rs.1,260 crore) was up 60% compared to the corresponding period in the previous year. Operating profit moved up to $89.2 million (Rs.397 crore) compared with $26.3 million (Rs.117 crore) corresponding period last year. Net profit stood at $47.6 million (Rs.212 crore), which is about eight times compared to the net profit of $5.4 million (Rs.24 crore) during the corresponding quarter in Q3FY06.

The strong performance during the quarter was mainly on account of higher volumes and capacity utilisation, as well as better domestic and export realisations. Company’s efforts to neutralise escalating energy costs per tonne also helped it in improving margins. While the sales volume increased by 15% to 4.5 million tonne, domestic sales realisation improved by 50% compared to the same quarter previous year. The overall improvement in realisation was about 40%. The volume growth, however, was partly on account of dispatches from its subsidiary Narmada Cements, as the Q3FY06 figures exclude the dispatches from Narmada.

UltraTech has successfully restricted the power cost per ton despite increase in imported coal prices and reduced domestic linkages. Changes in power sources and better consumption norms helped the company to restrict the rise in power cost per ton to 8.7% only, and the power & fuel cost as a percentage of net sales dipped by 600 basis points (bps) to 23%.

Company has outlined a capital-expenditure (capex) plan of about $600 million (Rs.2700 crore) over the next 3 years. The capex plan will enhance its capacity in the southern and western India, where it already enjoys a strong presence. With this expansion, company’s production capacity will increase to 21 million ton per annum from 17 million ton. The new capacity of 4 million tons at Tadipatri plant in the south Indian state of Andhra Pradesh along with captive power plant is scheduled to be commissioned in the second quarter of 2008-09.

In the coming years, UltraTech is expected to save significantly in power and fuel costs on account of commissioning of 140 megawatt captive power plant. Apart of that, it is setting up captive power plants in the states of Gujarat, Chattisgarh & Andhra Pradesh. Also, it’s becoming less dependent on imported coal and naphtha with the use of lignite. The lignite-based power plant is scheduled to be commissioned in the fourth quarter of 2007-08. After the completion of the capex plan, company will have 100% captive power capacity by first quarter of 2008-09.

As the demand for cement is increasing with an estimated growth for the industry to be around 10%, linked to GDP growth, price realisation is expected to improve further in the coming quarters making the outlook for the company promising.

The company has performed equally well on the stock markets as well. The stock price of UltraTech moved up to $24.6 (Rs.1097) on December 29, 2006 from $9.6 (Rs.427) on December 30, 2005 showing a rise of 157% compared with 103% rise in the stock price of ACC Ltd., the largest cement producing company of India, and the rise of 47% in Sensex, the benchmark index of India.