UltraTech Cement CFO: Rural markets, govt spends on infra driving growth

UltraTech Cement on Wednesday reported strong numbers for the three months of July-September 2020. This was on the back of strong cement demand which resulted in higher volumes and better cement prices compared with Q1. Also, the net profit doubled during the quarter on account of strict control on operating costs and lower finance cost. Atul Daga, chief financial officer, UltraTech Cement, tells Shubhra Tandon that operations are back to pre-Covid levels and cement demand will continue to remain strong driven by rural demand and government’s push to infrastructure. Edited excerpts from the interview:

What were the factors that drove Ebitda during the quarter?
It was everything — volume growth, relatively less decline in prices compared with last quarter, efficiency in cost management.

How has been the impact of Covid-19 on the company’s operations? Is the worst behind or you still see uncertainties?

By and large, our operations have not been impacted. There was a time when due to labour shortage, truck driver availability in Q1 that the dispatches were getting delayed. But all that is in the past. In this quarter, we did not suffer in any manner on account of Covid-19.

How were the cement prices during the quarter?

They were down about 3% over last quarter and increased 5-6% on a year-on-year basis. The demand for cement remains very strong.

What is the outlook like for the cement prices and raw material prices for the remaining year?

Cement prices will remain strong with demand as well as capacity utilisations picking up. Raw material prices constitute fly ash which is a small component. Biggest raw material is limestone which is captive mining. So, there the cost is normal inflation. In terms of the fuel cost, pet coke has been going up but alternate sources of fuel are available, so I do not foresee a challenge in fuel prices. However, for diesel we do not know how the government will manage prices because in the first half, diesel prices have gone up in double digits.
UltraTech has been reducing debt.

You have shaved off Rs 4,728 crore in the first half of the year. What is the target for FY21?
We should be below the 1x net debt to Ebitda mark.

Which are the sectors that are driving demand?

Rural markets followed by government infrastructure, which was the pattern pre-Covid as well. Everything has gone back to pre-Covid days. Rural markets are driving growth big time followed by the government spends on infrastructure. Lot of road projects and metro works across the country are going on, which is driving cement demand. The work on the Mumbai-Nagpur expressway and the upcoming Mumbai Delhi expressway will also drive demand. Atal Tunnel just got completed and we got 32% share there in the last four years of our involvement. So, the government’s push on infrastructure is a big boost.

Has the demand from the real estate sector picked up?

We are seeing demand pick-up in the tier-1 markets in the affordable and mid-income housing, but not in premium housing. In Mumbai, suburban areas are picking up volumes and new projects are being announced, work is commencing. Similarly, in NCR market — Gurgaon, Noida are seeing a number of projects. Bengaluru and Pune are also picking up when it comes to urban real estate demand.