India’s largest grey cement manufacturer UltraTech Cement is expected to report better volumes and a recovery in sales but profit is expected to dip when it reports its December quarter numbers on January 21.
UltraTech Cement's consolidated revenue is likely to rise by 19.5 percent year on year (YoY) and 11.7 percent quarter on quarter (QoQ) to Rs 15,191.5 crore, according to a brokerage poll conducted by Moneycontrol.
Net profit is expected to grow 46.2 percent QoQ to Rs 1,105.2 crore but is seen declining 5.7 percent YoY.
After witnessing a sharp dip in profitability in the second quarter of FY23 because of escalated operating costs and a fall in cement prices, manufacturers are likely to report an earnings recovery in Q3FY23 on the back of better volumes, an uptick in realisation and partial cost relief, said Elara Securities.
It, however, warned that the overall cement demand was hampered due to the festival season in October, limited availability of labour and regional issues such as construction ban in northern pockets, elections in Gujarat, muted sand availability in Punjab and the rise in agricultural activities in rural areas.
UltraTech Cement will report a volume of 23.8 million tons, up 11 percent YoY and 7.5 percent QoQ, factoring in seasonal recovery and a low base, Kotak Institutional Equities said.
It estimates blended realisations increased by 1.3 percent QoQ and 6.4 percent YoY, led by front-ended price hikes during the quarter.
In the December quarter, cement prices increased around 2 percent sequentially across India, HDFC Securities said.
The increase was approximately 4-6 percent QoQ in the east and south regions, 1-2 percent in the west, while the north was flattish. In the central region, prices corrected by a percent from the September quarter, the brokerage said.
Channel checks indicate that all-India average cement prices are likely to rise about 3 percent YoY and around 2 percent QoQ in Q3 of FY23, Elara Securities said.
Kotak Institutional Equities estimated that costs per ton would decline sequentially, down 1.2 percent QoQ, led by operating leverage and marginally by lower power-fuel cost.
“We estimate cement EBITDA/ton to recover sequentially to Rs 957/ton (-10.3 percent yoy, +17.2 percent QoQ), led by a combination of higher realizations and lower costs.”
The operating margins of cement companies have contracted sharply over the past year due to elevated fuel prices, of pet coke as well as imported coal. Fuel prices have started to cool off and have corrected approximately 21-41 percent from their peaks.
“We believe energy cost peaked out in 2QFY23 and expect a reduction in energy costs from 3QFY23 onwards (reduction of INR200/t over 3QFY23-1QFY24E based on current coal/petcoke prices),” said Motilal Oswal Financial Services.
Overall, analysts believe that better realisation, lower fuel prices, and operating leverage gain will aid margin expansion for cement manufacturers.
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