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UltraTech Cement margin to shrink due to spike in power fuel cost

earnings | Oct 18, 2022 2:08 PM IST

UltraTech Cement margin to shrink due to spike in power-fuel cost

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According to analysts polled by CNBC-TV18, estimate blended realisations shall support the topline growth but margin and profit are expected to decline due to cost pressure.

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UltraTech Cement will report its financial results for the July to September quarter on Wednesday and like its peers, analysts expect it to post weak earnings as cost pressures cast a shadow on the cement sector.
The cement maker’s consolidated revenue for the second quarter of the fiscal is likely to grow over 11 percent on a year-on-year basis to Rs 13, 410 crore, according to a CNBC-TV18 poll of analysts. In the September quarter last year, the firm posted revenue of Rs 12,016 crore.
According to the analysts, estimate blended realisations that are expected to increase 3-4 percent annually shall support the topline growth. However, realisations shall decline sequentially due to lower June exit prices and muted prices during the quarter, they said.
On most other fronts, including profit after tax, margin and earnings before interest, taxes, depreciation, and amortisation (EBITDA) are expected to see a downtrend.
The analysts noted that UltraTech Cement’s pan India presence cushions against any severe regional issues but said that ready-mix concrete (RMC) and white cement businesses' recovery needs to be tracked.
They added that margins are expected to be impacted big time due to a combination of lower realisations and higher costs, led by higher variable costs per tonne. The cost spike is largely led by power-fuel cost due to a lag in consumption of high-cost inventory, analysts polled by CNBC-TV18 said. However, they expect the cost pressure to be partially offset by higher realisations and operating leverage.
The cement company’s standalone are volumes expected to see a growth of 8 percent YoY at 22.1 metric tonne versus 20.45 metric tonne previously. The analysts highlighted that the comapny commissioned capacities in past year and the volumes’ estimates factor in seasonality and backend recovery in demand during the quarter. The firm’s other income, may decline as cash gets utilised to expand capacity, they added.
The Street awaits management commentary on industry demand-supply dynamics and cement price hikes/absorption to pass on cost inflation. Other key things to look out for include project updates, net debt movement as the company has been expanding capacity, de-leveraging the balance sheet and capex plans.
On Tuesday, UltraTech Cement shares were trading 1.6 percent higher from the previous close at Rs 6371.10 on BSE. However, in 2022 (year-to-date), the cement stock has erased 17.5 percent of investors’ wealth as compared to the benchmark Sensex which has fallen 0.3 percent during the period.
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