UltraTech Cement Limited, the world’s third-largest cement manufacturer (excluding China) with a consolidated annual capacity of 116.8 million tonnes, is slated to declare its results for the second quarter today.
Cement companies faced a double-edged sword in the quarter ended September 30 amid rising input and freight costs on the back of fuel price hikes and reduced demand due to monsoon.
According to a report from Motilal Oswal, with gradual easing of restrictions across states in June, demand saw an uptick in July-August but higher rainfall impacted demand in September with a volumes down 10 percent month-on-month.
In the coming quarters, the conditions are expected to improve and the sector may see an upward momentum in demand and prices.
What to expect
Volume, Realisations and Revenues
Market experts tracking the company are expecting volumes of 20.4 million tonnes, an on-year growth of 6 percent and a decline of 1 percent on a sequential basis after factoring the seasonal headwinds and back-ended monsoon.
The average realisations are expected to see a dip of 2 percent quarte-on-quarter because of seasonality and a growth of 5 percent year-on-year. The realisations for Ultratech are expected to be around Rs 5,400 per tonne in this quarter.
A channel check by Sharekhan suggests that pan-India cement prices in Q2FY2022 were down 3.7 percent QoQ (up 2.1 percent YoY), with higher dip seen in East, South and Central regions in this order.
Motilal Oswal’s channel checks reveal that on a YoY basis, the cement prices were down 3 percent in South India and 1 percent in Central India. This dip was however negated by a growth of 3 percent in North India.
Based on this, the revenues for UltraTech are expected to increase by 11-12 percent over the last year to Rs. 11,300 crore which will be a decline of around 2 percent on a sequential basis.
Margins
All the sectors are feeling the heat of rising fuel/energy prices. Cement is one of the most energy-intensive sectors. Margins in the second quarter are going to be impacted by the rising prices of coal and petcoke and also the freight cost due to rising oil prices. The prices of imported coal and petcoke have nearly doubled in the last one year.
Motilal Oswal suggests that cost impact has not been felt till date, due to low-cost fuel inventory. "We expect energy cost to increase by Rs 50-60 per tonne in 2QFY22, followed by another Rs 125-150/Rs 50-75 per tonne increase in 3Q/4QFY22. Increase in coal prices in the last few days may put further pressure on costs," it said.
Kotak Securities expect 5-6 percent QoQ increase in power-fuel cost and 3-4 percent QoQ increase in freight costs led by higher petcoke and diesel prices in the past six months resulting in a 5 percent QoQ increase in costs per tonne in 2QFY22.
According to Emkay Securities, total cost/ton is estimated to increase by 7% on a YOY basis and by 3% QOQ to ~Rs. 4,075/ton.
The operating margins for UltraTech are expected to be in the region of 24 percent which is a decline of 2 percent on a YoY basis and a decline of 4 percent on a sequential basis.
The company's EBIDTA per tonne is expected to be around Rs 1,275, which is a decline of about 10 percent YoY and a decline of 20 percent on a sequential basis.
Kotak Securities estimate cement EBITDA per tonne to drop to Rs 1,250 (-21 percent QoQ, -10 percent YoY) led by a combination of higher variable costs and lower realisations.
Net Profit
UltraTech is expected to report better operational efficiencies which will partially negate the adverse impact of increased input and freight costs. It is expected to report a quarterly net profit of Rs 1,350 crore which is a YoY growth of 11 percent and a decline of 20 percent on a sequential basis.
Sharekhan expects the government’s focus on boosting infrastructure investments especially roads and residential demand momentum sustaining post Q4FY2021 is expected to benefit the cement space. However, rising power and fuel costs pose near-term challenges on maintaining OPM. However, considering structural growth drivers much of the input cost pressures can be passed through in ensuing period.
The stock closed at Rs 7,395 on Thursday, up Rs 45 from its previous day’s close. It has performed better than Nifty over a one-year time frame and has generated returns of about 75 percent (23 percent more than Nifty) over a period of one year. Over the last three months, it has generated 6.2 percent returns (5.8 percent lower than Nifty while over the past one month, the stock has not performed well and has generated negative returns of 8.3 percent (10.8 percent lower than Nifty).
Emkay Securities, expect an EPS of Rs 59/share for this quarter compared to Rs 33/share a year ago and Rs 62.8/share at the end of Q1FY22.
Motilal Oswal suggests and an EPS of Rs 230/share and an earnings multiple of 32.2 for FY22 compared to Rs 190.4/share and a multiple of 35.4 for FY21.
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