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UltraTech Cement Ltd reported stellar earnings in the March quarter. The company exceeded expectations on multiple fronts including volumes, realizations and operating profits. Still, the stock’s reaction was muted. In fact, the company’s stock was under pressure on Monday, and ended the day’s session a 6,403 on the NSE, down 1.22% from its previous close.

Analysts attribute this weakness to near-term risks of muted demand due to covid-restrictions and input cost inflation.

UltraTech’s sales volume grew 30% in Q4FY21 compared to the year-ago period. This was ahead of estimates and higher than peers ACC Ltd, Ambuja Cements Ltd and Dalmia Bharat Ltd. In a post-earnings conference call, UltraTech’s management said that while demand is very unpredictable right now, it is confident of recovery, thanks to infrastructure projects. The company is seeing gradual improvement in urban real estate market demand and the hit on rural demand is not worrisome as yet. Further, the management also acknowledged pressure from rising raw material expenses. Currently, the average price range for petroleum coke (petcoke) is around $125-130/tonne against $65/tonne last year, it said.

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But analysts say investors should not get too worried about these short-term risks. They feel other positives of timely capacity additions and continued deleveraging give UltraTech an edge over most competitors.

The management said its expansion programme is moving as per schedule with minor delay due to the second wave of covid-19; however, it is sticking with its plan to commission all its projects by FY23. It should be noted that after the March quarter earnings of ACC and Ambuja, many analysts expressed concerns about their muted expansion plans.

Analysts at Motilal Oswal Financial Services Ltd expect UltraTech to continue to gain market share aided by its ongoing 20 million-tonnes-per-annum expansion plan. They see this driving 11% volume CAGR over FY21-24. CAGR is short for compound annual growth rate.

Another key positive is that UltraTech’s consolidated net debt fell to 6,717 crore in March 2021. This is a considerable reduction from 16,981 crore in the same quarter last year. In FY21, consolidated net debt fell by 10,264 crore. With that, a key debt metric, net debt to Ebitda, improved from 1.6times in FY20 to 0.5times in FY21. Ebitda is short for earnings before interest, taxes, depreciation and amortization. Analysts say the continued decline in net gearing bodes well for the company’s target of becoming net debt free by FY23.

Meanwhile, to tackle elevated input costs, UltraTech has shifted to imported coal instead of imported petcoke. Imported coal is 20-25% cheaper than imported petcoke. In 4QFY21, coal comprised more than half of the total fuel requirement and petcoke usage came down to 30%, the management said further.

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