UltraTech Cement Ltd, India’s largest cement producer, is likely to report a decline in profitability and margins for September–December quarter due to decline in demand led by unseasonal rains in some regions and construction bans in the North, coupled with rising input costs.
The company is likely to report a 5 percent decline in volume off-take on a yearly basis, though on a sequential basis, there is likely an improvement of 6 percent. Blended realisations are likely to improve by 6-8 percent on year but likely to remain flat on a sequential basis. This would result in an increase of approximately 4 percent in net sales on a yearly basis and an increase of 7 percent on quarter.
The rise in pet coke and fuel prices is likely to result in margin declines with EBITDA per ton (earnings before interest, tax, depreciation and amortisation) expected to decline by 16-18 percent YoY as well as QoQ. Basis this, the net profit for the quarter may fall by about 25-28 percent on year and by about 15 percent on a sequential basis.
The company had registered a consolidated net profit of Rs 1,584.3 crore on consolidated revenues of Rs 12,254.1 crore in the corresponding quarter of previous financial year. The consolidated profit in the previous quarter of current financial year stood at Rs 1,313.5 crore on revenues of Rs 12,016.8 crore.
Analysts' Expectations
According to a report by brokerage firm Motilal Oswal, “cement demand came under pressure in Nov’21 and the first half of Dec’21 due to unseasonal rainfall, a sand crisis in a few markets of Uttar Pradesh and in East India, and the marriage season after the COVID-19 outbreak in CY20”. Apart from this, the demand in North India was impacted by the ban on construction activities in the Delhi–NCR (National Capital Region).
The brokerage expects a total sales volume of 23.4 MT (million tonnes) for the quarter which is a decline of ~2.1 percent on year. On a sequential basis this is an improvement of 8 percent. White cement volumes are expected to remain flat.
Blended realisations for the quarter are expected at ~5,508/ton, increasing by ~7.3 percent on a yearly basis and flat on quarter.
Motilal Oswal expects net sales to rise 5 percent on year to Rs 12,878 crore, which is an increase of 7.2 percent QoQ.
“We expect variable costs to increase by 24 percent YoY and 11 percent QoQ while other expenses are expected to rise by 18 percent YoY,” the brokerage said in its report. This is due to higher pet coke/coal and energy costs coupled with higher freight costs.
Accordingly, Motilal Oswal expects EBITDA margins of 18 percent which is down 690 points on year and down 220 bps on quarter.
The brokerage expects UltraTech to report 31 percent YoY and 17 percent QoQ decline in profit after tax (PAT) to Rs 1,087 crore.
Brokerage firms, Kotak Institutional Equities and Emkay Research expect volumes to be much lower at 21.7 MT, a decline of 5 percent YoY and an improvement of 6 percent QoQ.
“We estimate volume of 21.7 MT (-5 percent YoY, +6 percent QoQ) in third quarter, factoring demand impacted by back-ended monsoons, poor labour availability, regional issues such as construction ban, sand availability and truckers strike,” Kotak said in its report.
We estimate blended realisations to remain flattish -0.5 percent QoQ but likely to improve by 8 percent YoY as price hikes at the start of quarter did not hold up, it added in its report.
Kotak expects the company to clock net sales of Rs 11,825 crore, up 2.9 percent YoY and up 5.6 percent on quarter.
On the rise in variable costs during the quarter, the brokerage “expect 10-15 percent QoQ increase in power-fuel cost led by higher pet coke/thermal coal prices in the past six months resulting in a 5 percent QoQ increase in costs/ton during this quarter”.
Kotak’s view coincides with Motilal Oswal as it expects EBITDA margins in the region of 18-19 percent, registering a decline of 670 bps on year and 456 bps on a quarterly basis.
“We estimate cement EBITDA/ton to decline to Rs 1,062/ton (-20 percent QoQ, -20 percent YoY) led by a combination of higher variable costs and flat realizations,” it added.
Basis this, PAT is likely to stand at Rs 1,188 crore for the quarter.
According to a report by Emkay Research, “total volumes are expected to decline 5 percent YoY (increase 6 percent QoQ) to 21.7 MT, while grey cement realisation is expected to increase 9 percent YoY/ ~2 percent QoQ”.
Better realisations are likely to result in an improvement of 4 percent YoY and 7.5 percent on quarter in net sales, to Rs 12,629 crore.
Total cost/ton is estimated to increase 18 percent YoY/ ~5 percent QoQ. Accordingly, “we estimate blended EBITDA/ton in India to decline by 16 percent YoY as well as QoQ to Rs1,116”, said Emkay.
The company is likely to record a PAT of Rs 1,124 crore for the quarter which is a decline of 29 percent on yearly and 14 percent on quarterly basis..
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