Cement trades weak on profit-booking; UltraTech dips 3% post Q3 results

Shares of cement companies were trading weak and fell up to 3 per cent on the BSE in Monday’s intra-day trade in an otherwise firm market on profit booking after the sector major UltraTech Cement reported its December quarter (Q3FY23) results.

UltraTech Cement and India Cements were down 3 per cent each, Shree Cement, Dalmia Bharat, Ambuja Cements, JK Cement, Ramco Cement and ACC were down in the range of 1 per cent to 2 per cent. In comparison, the S&P BSE Sensex was up 0.68 per cent at 61,036 at 11:13 AM.

In past six months, these stocks have outperformed the market, with Dalmia Bharat (18 per cent), Shree Cement (14 per cent), UltraTech Cement (10 per cent) and JK Cements (6 per cent), gaining more than 5 per cent each. In comparison, the S&P BSE Sensex was up 3 per cent during the same period.

In Q3FY23, UltraTech Cement, reported a 38 per cent year-on-year (YoY) decrease in consolidated net profit at Rs 1,062 crore, due to higher expenses. The company had posted net profit of Rs 1,710 crore in the same period last year. Energy and raw material costs were up 33 per cent and 13 per cent YoY, while they remained flat on a sequential basis.

Net sales grew 20.4 per cent YoY at Rs 15,299 crore. EBITDA margin for Q3FY23 improved 156 bps QoQ to 14.3 per cent with major delta coming from lower other expenses while on YoY basis it was down by 352 bps. Operating EBITDA improved to Rs 900/Mt from a low of Rs 812/Mt in the last quarter.

The major benefit of a cool-off in fuel cost will be visible in Q4 after the exhaustion of high-cost fuel inventories, according to analysts.

On outlook, UltraTech Cement said the rising government spending, a recovery in the rural economy on a pickup in farm incomes and pre-sales of housing real estate should also help the industry recover.

Meanwhile, UltraTech Cement is expanding its grinding capacity domestically to 131mtpa/154mtpa by FY23E/FY25E, offering strong growth visibility. Strong balance sheet (net debt to EBITDA stood at 0.71x) will help the company pursue growth opportunities.

Further, increase in WHRS/Solar capacities (Green power usage to increase to 36 per cent by FY25 v/s 20 per cent currently) along with the scope of reducing lead distance will help manage cost, Motilal Oswal Financial Services said in its result update.

Though margins remained lower than our estimates, there is further scope for healthy margin expansion, going forward, with the company utilising most of the high cost inventory in the current quarter only. Further, given the government’s focus on infrastructure spending and affordable housing, the capacity utilisation is likely to stay healthy at over 80 per cent (83 per cent in the current quarter) despite aggressive capacity addition in the industry, ICICI Securities said in a note.

Analysts at HDFC Securities expects better realisation, lower fuel prices, and op-lev gain to further increase margin by Rs 200-250 per MT QoQ in Q4FY23 to reach close to Rs 1,000 per MT (similar level seen in Q4FY22).