Earnings Outlook
UltraTech net seen down for second quarter on lower realisations
This story was originally published at 10:04 IST on 22 January 2025
Register to read our real-time news.Informist, Wednesday, Jan. 22, 2025
By Aman Aryan
MUMBAI – Lower on-year realisations and earnings before interest, tax, depreciation, and amortisation per tonne could weigh on UltraTech Cement Ltd.'s earnings for the December quarter.
However, the company is poised to post strong sequential growth in the quarter due to a low base and seasonal factors. Analysts believe the price hike attempted in December would have been only partially successful.
UltraTech is expected to post a consolidated net profit of INR 13 billion for the quarter ended December, down 27% from a year ago, according to an average of estimates from 12 brokerage firms. The highest estimate for net profit was INR 14.13 billion by Axis Securities and the lowest estimate was INR 11.51 billion by YES Securities.
The consolidated revenue for the flagship company of the Aditya Birla group is seen marginally up at INR 167.75 billion for the December quarter, according to an average of estimates from 12 brokerage firms. While Systematix Shares and Stocks (India) gave the highest estimate for the company's revenue at INR 170.80 billion, Kotak gave the lowest estimate of INR 162.88 billion. The company is scheduled to report its earnings for the December quarter on Thursday.
If the estimates turn out to be accurate, it will be the second consecutive quarter of an on-year decline in the company's consolidated net profit. Also, it will be the lowest on-year growth in the company's consolidated revenue in 18 quarters, barring the previous quarter when the company's revenue fell 2.4% on year.
While pan-India cement prices would likely have improved 2-3% sequentially, prices in the south would have remained flat during the quarter, analysts said. Despite recording sequential growth, the December quarter cement price is below the five-year average price, YES Securities said in its earnings preview. Notwithstanding the growth in prices, the realisation will continue to disappoint for another quarter, analysts said.
While analysts expect the company to report healthy volume growth for the quarter, a drop in realisations is seen hitting the company's bottom line. Although UltraTech recorded a 3% volume growth in the September quarter, an 8% on-year fall in realisations per tonne from cement sales weighed on its earnings for the quarter, pulling its net profit down sharply by 36%. Axis Securities, Motilal Oswal, YES Securities, and Kotak expect the company's volume to grow 9%, 10%, 11%, and 9%, respectively. However, Nomura Global Market Research cut its estimate for the company's grey cement volumes for the December quarter by 14% to 27.6 million tonnes.
Unlike the likely lacklustre performance on a year-on-year basis, the company's consolidated net profit and revenues are seen up 59% and 7%, respectively, on a sequential basis. Although there has not been any major progress in the government's capital expenditure programme in the quarter, the industry might see an uptick in earnings after two consecutive slow quarters, analysts said.
Apart from a fall in realisations, higher depreciation and interest expenses are also expected to drag down the company's net profit for the reporting quarter. Motilal Oswal expects the company's depreciation to rise 16% on year and interest expenses to rise 25% on year.
As a pan-India player, UltraTech is poised to benefit from the increase in demand for cement in the December quarter, YES Securities said, and added that the company will likely report an 11% on-year growth in its volumes for the quarter. The pickup in demand in December mitigated the slowdown in demand in the first two festive-laden months of the quarter.
The company could also benefit from the fall in prices of petroleum coke and coal and lower freight costs due to a rise in railway sidings, Prabhudas Lilladher said. Freight and forwarding costs accounted for 24.2% of the company's total expenses for the previous quarter. Both international petroleum coke and coal prices have seen a notable on-year fall, with petroleum coke prices dropping by 20% and coal prices by 15%, Axis Securities said in its earnings preview.
The current reduction in fuel prices could provide some relief to the company as power and fuel costs together accounted for nearly 26% of the company's total costs for the September quarter. UltraTech's cost per tonne for the December quarter is seen down 3% sequentially and down 4% on year at INR 4,761/tn, Axis Securities said.
In October, almost all the cement makers, including UltraTech, hiked prices by INR 10-30 per 50-kilogram bag. Overall, the December quarter was full of favourable factors for the company. During the quarter, the cement-maker commissioned an additional 1.2 million tonnes per annum of grinding capacity at its unit in Arakkonam, Tamil Nadu, and increased the capacity of its unit in Kukurdih, Chhattisgarh, by 600,000 tonnes per annum, taking the company's total capacity to 156.66 mtpa. The company expects its capacity to reach 157 mtpa by FY25-end and 183.5 mtpa by FY27-end, Nirmal Bang said in its earnings preview.
In November, the company approved raising INR 30 billion through a private placement of non-convertible debentures. The company also planned to raise INR 10 billion through bonds. In December, the company approved the acquisition of a 26% stake in Clean Max Sapphire Pvt. Ltd. in six months for INR 457.68 million. UltraTech also increased its stake in India Cements Ltd. to 55.49% in December and gained a controlling interest in the company.
UltraTech's EBITDA is seen down 20% on year and up 21% sequentially at INR 27.14 billion for the December quarter, according to the average of estimates from 11 brokerage firms. Estimates for the EBITDA/tn range from INR 855 by YES Securities to INR 977 by Axis Securities.
Of the 19 brokerage reports on the company available with Informist, 15 have a 'buy' or equivalent rating, three have a 'hold' or equivalent rating, and one has a 'sell' rating. At 0920 IST, shares of the company traded at INR 10,677.10 on the National Stock Exchange, up 0.2%. The stock is 1.3?low the lowest target price by a brokerage with a 'buy' rating and down 1.8% from the closing price on Oct. 21, when it released its earnings for the September quarter.
Following are the Oct-Dec earnings estimates for UltraTech Cement based on reports compiled by Informist from 12 brokerages in descending order by the estimate of net profit:
|
Brokerage Firm |
Net Sales |
Net Profit |
EBITDA |
EBITDA/tn |
|
---------(in INR million)----------- |
(INR) |
|||
|
Axis Securities Ltd. |
1,70,750.00 |
14,130.00 |
29,070.00 |
977.00 |
|
Systematix Shares and Stocks (India) Ltd. |
1,70,800.00 |
14,100.00 |
27,500.00 |
-- |
|
Prabhudas Lilladher Pvt. Ltd. |
1,67,747.00 |
13,761.00 |
28,415.00 |
-- |
|
Elara Securities (India) Pvt. Ltd. |
1,70,093.00 |
13,615.00 |
28,245.00 |
-- |
|
Nomura Equity Research |
1,64,593.00 |
13,385.00 |
25,348.00 |
-- |
|
Nirmal Bang Equities Pvt. Ltd. |
1,68,314.00 |
12,962.00 |
25,637.00 |
-- |
|
Motilal Oswal Financial Services Ltd. |
1,70,326.00 |
12,914.00 |
27,855.00 |
-- |
|
Kotak Institutional Equities |
1,62,877.00 |
12,762.00 |
27,204.00 |
-- |
|
Nuvama Wealth Management Ltd. |
1,65,366.00 |
12,653.00 |
26,822.00 |
-- |
|
Sharekhan Ltd. |
1,63,760.00 |
12,540.00 |
-- |
-- |
|
IDBI Capital Market Services Ltd. |
1,69,074.00 |
11,659.00 |
26,476.00 |
923.00 |
|
YES Securities (India) Ltd. |
1,69,254.00 |
11,507.00 |
25,930.00 |
855.00 |
|
Average |
167,746.17 |
12,999.00 |
27,136.55 |
918.33 |
End
Edited by Namrata Rao
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