UltraTech's margin disappoints Street, weighs on other cement stocks. Here's what investors should do

The Aditya Birla Group cement major reported a net profit of Rs 1,058 crore for the October-December period, as against a net profit of Rs 1,707 crore for the corresponding period a year ago.

Jefferies maintained a 'buy' call on Ultratech with a target price of Rs 8,300 per share - Image Source: Reuters

Cement stocks reeled under pressure on Monday, after UltraTech — India's largest cement manufacturer by market value as well as sales — reported a quarterly margin that fell short of analysts' expectations. Analysts say the cement major's quarterly performance triggered concerns about the persistent impact of inflation pressure on margins, dented by high raw material costs.

The Aditya Birla Group cement major reported a net profit of Rs 1,058 crore for the October-December period, as against a net profit of Rs 1,707 crore for the corresponding period a year ago.

UltraTech's revenue increased 19.5 per cent to Rs 15,520 crore for the three-month period on a year-on-year basis, according to a regulatory filing.

According to Zee Business research, the cement maker's quarterly net profit was estimated at Rs 1,093.7 crore and revenue at Rs 15,505.5 crore

The company's margin — a key measure of a company's profitability — fell by 350 basis points to 15.1 per cent compared with the year-ago period, according to the filing.
According to Zee Business research, the company's margin was estimated at 15.4 per cent.

UltraTech's energy costs increased 33 per cent on year, and raw material costs 13 per cent, according to a company statement.

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Shares of cement companies such as Shree Cement, Ambuja Cements and ACC slipped around 2-3.5 per cent, and those of India Cements, Orient Cement, JK Cement and Dalmia Bharat declined 1-4 per cent.

How brokerages are reading UltraTech results, and what they expect from the sector.

Demand is expected to strengthen in the quarter ending March 2023, and may remain robust in the year ending March 2024, according to ICICI Securities Analyst Harsh Mittal.

Equipped with higher capacity, UltraTech will be better placed to serve incremental demand, the analyst said on UltraTech's latest quarterly performance.

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The brokerage reduced its EBITDA estimates for UltraTech for two years ending March 2024 by 7-10 per cent factoring in the slow pace of price hikes and higher fuel costs.

It maintained a 'buy' on UltraTech but reduced its target price for the stock to Rs 8,350 per share. The brokerage reiterated UltraTech as its top pick in the cement space.

Jefferies maintained a 'buy' call on Ultratech with a target price of Rs 8,300 per share.

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