UltraTech Cement results managed to beat street’s estimate despite inflationary hurdles in industry

UltraTech Cement Limited is the cement flagship company of the Aditya Birla Group. UltraTech, a leader in building solutions with a market cap of USD 7.1 billion, is one of India’s top producers of white cement as well as the country’s largest producer of grey cement and ready-mix concrete (RMC). Taking China out of the equation, it is the third-largest cement manufacturer in the world. Outside of China, UltraTech is the only cement manufacturer with a production capacity of 100 MTPA or more in a single nation. The company conducts business in the United Arab Emirates, Bahrain, Sri Lanka, and India.

UltraTech Cement Limited announced their Q1FY23 results on 22^nd July 2022, where they reported YoY growth in volumes due to low base effect. While both top and bottom line saw YoY & QoQ decline yet managed to beat street’s estimate. On the stock market, UltraTech Cement stock is optimistic in the near term as it gave investors a return of about 5.3% on the day the Q1FY23 results were announced. Due to margin pressures and rise in industry competition brought on by Adani’s entry into the cement sector with the acquisition of the majority stake in Ambuja and ACC cement, the sector as a whole has seen corrections in their share prices in 2022.

Now that the Q1FY23 results have been released, let’s analyse the company’s fundamentals and technicals and consider the emerging market trends to determine the future route of cement manufacturing businesses in India.

Key Highlights of UltraTech Cement Q1FY23

• UltraTech Cement reported 9% YoY decline in consolidated net profit at Rs 1,584 crores, while QoQ it fell 35.6%
• The company’s net sales rose 2% YoY to Rs 15,164 crores in Q1FY23, while QoQ it declined by 3.8%
• The company also reported that in Q1FY23, capacity utilisation increased to 83% from Q1FY22’s 73%
• On a YoY basis, domestic sales volume increased by 19%
• EBITDA for the Q1FY23 at Rs 3,095 crores was lower by 6.4% YoY while on a sequential basis there was an improvement of 2%
• EBITDA margins for the Q1FY23 came in at 20% which were down 8% from the margins of 28% achieved during the Q1FY22
• The company’s power and fuel costs significantly increased as a result of the rise in the price of pet coke and oil, increasing by 5.95% from the Q1FY22 to 26.5% of total The cost of power and fuel has increased by 130 Bps since Q4FY22

UltraTech Cement results Q1FY23: PAT fell 6.9% YoY while Revenue grew 28.2% YoY 

UltraTech Cement reported 6.9% YoY decline in consolidated net profit at Rs 1,584 crores for Q1FY23 as compared to a net profit of Rs 1,703 crores in Q1FY22. The company’s net sales rose 28.2% YoY to Rs 15164 crores in Q1FY23 from Rs 11830 crores in Q1FY22.

On a sequential basis, the company’s profit has gone down to Rs 1584 crores in Q1FY23 35.6% from Rs 2,620 crores earned in Q4FY22. While sales went down by 3.8% QoQ to Rs 15767 crores in Q1FY23 from Rs 15,164 crores in Q1FY22 .

The volumes witnessed strong traction over the low base of last year and the price hikes taken by the company enabled improvement in realisations which fuelled revenue growth. However, the increase in gas and power prices had an effect on profitability. Sequentially, the demand was affected by a moderating demand from the real estate sector due to higher commodity prices.

However, pre-monsoon construction activities caused the demand for cement to increase in June 2022. Additionally, the company reported that in Q1FY23, capacity utilisation increased to 83% from Q1FY22’s 73%. On a YoY basis, domestic sales volume increased by 19%.

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UltraTech Cement results Q1FY23: EBITDA fell YoY while it remained almost flat QoQ

The company’s power and fuel costs significantly increased as a result of the rise in the price of pet coke and oil, increasing by 5.95% from the Q1FY22 to 26.5% of total revenue. The cost of power and fuel has increased by 130 bps since Q4FY22.

However, the company was able to save money on labour costs and freight and forwarding costs, which fell 74 bps and 69 bps over Q1FY22, respectively. Sequentially, however, freight decreased by 36 bps while personnel cost as a percentage of revenue slightly increased by 22 bps.

As a result, EBITDA for Q1FY23 stood at Rs 3,095 crores lower by 6.4% YoY while on a sequential basis there was an improvement of 1.2% from Rs 3,073 crores recorded during Q4FY22. EBITDA margins for the Q1FY23 came in at 20% which were down 8% from the margins of 28% achieved during the Q1FY22. Sequentially, there is an improvement of 1% in the margins.

In addition to providing an outlook for FY23, the company noted that while challenges brought on by rising cost pressure may have an impact on cement companies’ profitability, the strong housing market and the government’s emphasis on infrastructure and industrial development will likely result in increased demand for cement in FY23.

UltraTech Cement results Q1FY23: Robust Capex plans target to reach 200 MNT capacity by FY30E

Total capex in FY23 is expected to be Rs 6,000 crore while the company shall spend Rs 3,000 crore to complete the ongoing phase-I expansion of 19.9 MTPA. It is likely to incur capex of Rs 60,00 crore in FY24 as well, including capex on WHRS units.

UltraTech Cement stated its existing expansion program is on track and estimated to be completed by the end of FY23. “Work on further capex announced during the quarter has already commenced and commercial production from these new capacities is expected to go on stream in a phased manner by FY25, upon completion of the latest round of expansion, the company’s capacity will grow to 131.25 MTPA, reinforcing its position as the third largest cement company in the world, outside of China” as said by company in a call with analysts’.

The management also highlighted that the Indian cement industry will add 80- 100 MTPA capacity by FY25, driven by increased spending on housing and infrastructure. Given the company’s large scale, UltraTech is well positioned to meet the growing cement demand in the country.

Consolidated net debt marginally inched up to Rs 5,560 crore in Q1FY23 from Rs 3,750 crore in Q4FY22.

Technical Analysis of UltraTech Cement share price

UltraTech cement share price reached its 52 weeks high of 8269 in November 2021 after which it moved sideways for few months and then experienced a sharp correction in February. UltraTech Cement share reached its 52 weeks low of 5157 in June 2022. The 50 EMA was below 100 and 200 EMA for around 6 months and is currently close to crossing 100 EMA line from below. The UltraTech Cement stock has gained just 6% in a month post results. Therefore, long term investors need to wait for the bullish EMA crossover, before investing in UltraTech Cement shares.

Prabhudas Lilladher said, “UltraTech’s consistent industry leading performance on both volume growth and margins vindicates its strong business model. Led by market leading position (20%+ market share), strong B/S (Net debt/EBITDA at 0.5x) and efficient operations, we maintain ACCUMULATE rating with TP of Rs 7,180”

Motilal Oswal said, “We maintain our Buy rating. We raise our FY23/FY24 EPS by 8%/9% given its strong 1QFY23 performance. Our TP of INR7,210 offers an upside of 12% from its CMP.”

ICICI Securities also said, “We broadly maintain our FY23E-FY24E EBITDA with the target price unchanged at Rs 8,500/share. Maintain BUY and reiterate UltraTech as our top pick in the sector. Key risks: lower demand / prices, and higher costs.”

Our view

Given the strong momentum in housing and the government’s initiatives, the cement sector in India is expected to have an increase in demand in FY23, despite challenges brought on by rising cost pressure that may have an impact on cement businesses’ profitability.

The verdict on the Univest app says that Company has strong fundamentals while technically it takes neutral stance for both short- and long-term time frame. Therefore, it gives a hold rating for the existing investors. Further, fresh investors can consider investing into the stock when technical indicators indicate an entry point and stance on the Univest App becomes bullish.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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