UltraTech Cement shares fall 2.5% despite in-line Q3 results; should you buy, hold or sell? What analysts say

UltraTech Cement reported a consolidated profit after tax (PAT) of Rs 1,708 crore for the quarter ended 31 December 2021, up 7.8% against Rs 1,584 crore in the year-ago period. Its consolidated net sales in the quarter stood at Rs 12,710 crore

Ultratech Cement
Ultratech Cement scrip today touched intraday low of Rs 7,663 on Tuesday

UltraTech Cement share price fell over 2.5 per cent amid profit booking in the early trade on Tuesday (18 January), a day after the company reported December quarter earnings that meet street expectations. The company reported a consolidated profit after tax (PAT) of Rs 1,708 crore for the quarter ended 31 December 2021, up 7.8% against Rs 1,584 crore in the year-ago period. Its consolidated net sales in the quarter stood at Rs 12,710 crore, up 5% from Rs 12,144 crore in the year-ago period. “The company reported two-year-low margins, on expected lines, led by cost pressures and weak demand. Demand in the October-December 2021 quarter was hit by unseasonal rains and certain external factors limited to the quarter,” stated Kotak Securities in its note. Ultratech Cement scrip today touched intraday low of Rs 7,663 today before recovering a little, and was trading Rs 7,696.10 a piece on the BSE, down 2.18%, while the benchmark Sensex was 0.3% at 61,125.10.

Should you buy, hold or sell?

ICICI Securities: BUY
Target price: Rs 8,850

UltraTech Cement’s Q3FY22 consolidated EBITDA, Consolidated volumes, EBITDA/te were broadly in line with the brokerage’s estimates. According to ICICI Securities, cost pressures are likely to peak out from Q1FY23E with input prices receding, while pricing may improve with better industry utilisation over FY23-24E, resulting in better margins. “We believe UTCEM with its large pan-India diversified market presence, premium brand positioning, timely capacity creation and increased cost efficiencies is better placed to gain market share/improve margins in the medium term. We maintain BUY with a revised target price of Rs 8,080 per share (earlier Rs 8,850) based on 15x FY24E EV/E on quarterly rollover,” it said.

JM Financial: BUY
Target price: Rs 8,400

UltraTech Q3 EBITDA missed expectations on higher manufacturing costs and other expenses. The quarter witnessed multiple headwinds with intermittent demand hiccups, rising costs and unfavourable pricing. “Going forward, management expects the strong demand undercurrent to support the cement prices. Further, the impact of softening of commodity prices will be visible 1QFY23 onwards… Ultratech is in process of commissioning c.19.5MTPA by FY23 at a relatively low capital cost (USD 58/t) and at low cost of capital. Ultratech’s initiatives to increase the share of green power to 34% (15% currently) by FY24 and focus on margin accretive/asset light/value added business segments will be key drivers of improvement in its return ratio profile,” the brokerage said. It maintained a ‘Buy’ rating on the stock with a target price of Rs 8,400 per share.

Emkay Global: BUY
Target price: Rs 8,750

UltraTech Cement’s consolidated EBITDA declined 22% YoY/11% QoQ to Rs24bn in Q3FY22, broadly in line with Emkay Global’s estimates. The brokerage believes that with its large pan-India diversified market presence, premium brand positioning and focus on cost efficiency, UltraTech Cement is better placed to improve margins in the medium term. Besides, the company’s RoIC is expected to increase to a sustainable level of 20%+ within the next 4 to 5 years (vs. 12% in the past decade). Factoring in higher opex/ton due to input cost inflation and recent weakness in demand, the brokerage firm cut FY22/FY23 EBITDA estimates by 8%/3%. “We roll over to Mar’23 from Dec’22 and increase our TP by 3% to Rs 8,750. Maintain Buy,” it said.

Prabhudas Liladher: ACCUMULATE
Target price: Ra 8,535

The company reported Q3FY22 earnings below Prabhudas Liladher’s consensus estimates by 9%/10%, largely due to steeper than expected increase in cost and in-line realisations. The slide in margins over the last couple of quarters has been attributed to abnormal increase in costs and erratic recovery in prices coupled with demand impacted by unseasonal rains, sand shortage, etc. However, according to the brokerage firm, scope for improvement in margins is very limited as the sector is generating strong cash flows with continuous capacity addition. This could potentially be the key driver for earnings downgrade by street. “We continue to like UTCEM given its market leading position (20%+ market share), strong B/S and efficient operations. However, high expectation with 2-year volume CAGR of 12%, EBITDA/t of Rs 1,300 and rich valuations leaves limited upside with potential risk of earnings downgrade. We downgrade stock to ACCUMULATE with revised TP of Rs 8,535 (earlier Rs 8,650)”.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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