BackIs UltraTech Cement a buy after Q4FY23 earnings? Here's what brokerages say
Gains in market share for UltraTech were fueled by strong demand and a capacity ramp-up that increased volume. In Q4 and for the entire FY23, cement capacity utilisation was 95%.
PremiumUltraTech Cement Ltd on Friday reported that on an annual basis, input cost constraints, notably for fuels like coal and petcoke, weighed on the the India's largest cement makers profits during Q4FY23 (January-March).
The company announced its financial results for the January-March quarter of fiscal year 2023 (Q4FY23) on Friday. Consolidated net profit for the quarter was ₹1,665.95 crore, down 36% from ₹2620.43 crore in the prior-year period.
Ultratech Q4 Results: Stock trades flat ahead of numbers
The company reported in an exchange filing that its energy costs increased 17% year over year and decreased 4% quarter over quarter.
Prices for coal and pet coke increased by 18% year over year (YoY). The cost of raw materials increased by 9% YoY as a result of increases in the cost of fly ash, slag, and other raw materials.
Consolidated revenue from operations surged by 18.4% in Q4 FY23 to reach ₹18,662.4 crore, up from the cement giant's reported figure of ₹15,767 crore for the same quarter in FY22.
UltraTech Cement Q4FY23 Results: Net profit down 36%, declares dividend
Meanwhile, the company recorded strong consolidated sales volume growth in the March quarter (Q4FY23) at 31.7 million tonnes (mt), with domestic sales at 30.5mt. This year-on-year (y-o-y) growth rate was about 15%. Gains in market share for UltraTech were fueled by strong demand and a capacity ramp-up that increased volume. In Q4 and for the entire FY23, cement capacity utilisation was 95%.
On Friday, shares of the company ended at ₹7,554.60 per share, up 0.7% or ₹53.35.
Brokerages have shared their ratings and opinions on the stock in response to the Q4FY23 earnings results of the cement major. Let's take a look at what they have suggested.
UltraTech Cement Q4 result: Firm declared dividend, check details here
ICICI Securities Ltd
According to the brokerage's analysis, the company had a strong fourth quarter of fiscal year 23 with volumes increasing by more than 14% YoY, a realisation drop stopped at just under 1% QoQ, a decrease in variable cost per tonne of more than 3% QoQ, and a restrained increase in fixed costs of only 5.5% YoY/3% QoQ.
As a result, the company's consolidated profits before interest, taxes, depreciation, and amortisation (EBITDA), which came in at ₹33.2 billion, above expectations by more than 4%. Blended EBITDA/tonne was Rs. 1,048, exceeding expectations by more than 4%.
"Yet, we see limited scope to raise our earnings forecast. Despite easing fuel costs, we maintain there exists a downgrade risk to consensus estimates given the weak cement pricing environment. Further, consistent industry-wide capacity additions and overhang of aggressive expansion by Adani group restrain upward revision to our valuation multiple. We continue to value the company at 15 times FY25E EV/EBITDA and maintain 'hold' rating with unchanged target price of ₹7,295," said the brokerage in its report.
PhillipCapital (India) Pvt Ltd
According to the brokerage, despite its enormous size and the unmatched systemic mechanisms in place, UltraTech Cement is the only company in the market where the brokerage house have received consistent ground feedback regarding a much fair code of conduct of business. It believes that its Q4 data accurately reflect the necessary results of its best-in-class vigilance.
"We do not foresee any major risks to our estimates, and maintain 'buy' with previous target price of ₹9,200," said the brokerage.
Dolat Capital Market Pvt Ltd
The company's capacity will rise from 120 million tonnes per annum (mtpa) in FY22 to 136.7 or 160.5 mtpa in FY23 or FY25-26. In the Q1FY24 earnings call, the cement major will discuss the next phase of expansion after the current 22.6 mtpa (Phase 2) project.
In order to support future expansion, it has already made plans to increase capacity to 200 mtpa by FY29. Healthy operating cash flow and free cash flow will continue to be present, resulting in further deleveraging.
"The company being the largest player in Indian cement industry is its biggest advantage. However, the current market price leaves limited upside, thus we maintain 'accumulate' with a revised target price of ₹8,552 based on 16 times consolidated FY25E EV/EBITDA," said the brokerage.
Elara Securities (India) Pvt Ltd
"We remain positive on the company's volume prospects in the upcoming quarters considering access to incremental capacity and better demand. Although range-bound movement in cement prices is a challenge, easing fuel prices and UTCEM’s cost savings measures should keep a check on margin. Thus, we reiterate 'accumulate' and largely retain our earnings estimates for FY24 and FY25. We roll over to March 2025E from December 2024E and thus, our target price is raised to ₹8,638 from ₹8,325 based on 15.5 times (unchanged) FY25E EV/EBITDA," said the brokerage.
UltraTech’s valuation may get volume push
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