UltraTech shares muted ahead of Q2 results; Revenue to fall, say analysts

Analysts tracking the cement sector say that subdued economic activity in the first quarter is likely to weigh on sector leader UltraTech Cement's numbers, which reports its Q2 results today

Shares of India’s largest cement producer, UltraTech Cement were trading lower ahead of the company’s announcement of its second quarter financial year 2024-25 results today.

At 11:25 AM, the company’s stock was trading at 10,960, down 0.91 per cent, compared to the BSE Sensex’s decline of 0.12 per cent, at 81,128, around the same time.

According to analysts tracking the sector, the company’s performance during the quarter is expected to remain muted due to multiple headwinds during the period that has also weighed on the performance of the whole sector as well. 

According to them, the double whammy of declining cement prices and slowing demand in the sector is expected to weigh on the Aditya Birla Group company’s performance. 

 

Headwinds Aplenty

With the first two quarters of this fiscal seeing subdued economic activity due to a slower government capital expenditure cycle during the Lok Sabha elections, coupled with sporadic heatwaves and an above-normal monsoon during the second quarter, demand for cement is likely to have remained subdued during the quarter gone by, according to experts.

Cement prices have been declining for some time now. According to a research note by HDFC Securities, "Cement prices corrected 1-3 per cent across all regions" during the quarter. It added that demand for cement has slipped in Q2 from the previous quarter, bringing more downward pressure on its prices. 

Axis Securities noted that the moderation in cement prices observed in Q4FY24 has introduced pricing headwinds, with prices correcting further in Q1FY25. 

"Although cement companies implemented price hikes in August 2024 in the range of Rs 15-Rs 20 per bag, weak demand forced manufacturers to roll back a large portion of these increases. Cement manufacturers attempted further price hikes in September 2024 by Rs 10-Rs 15 per bag across regions. This attempt succeeded to some extent, with exit prices for Q2FY25 estimated to be lower by 3 per cent," it stated.
 

"The slowdown in construction activities during Q1FY25 (general elections, heat waves) continued in Q2FY25 due to demand sluggishness (elections impact and heavy rains all around)," it noted in its research report released on October 14.

Meanwhile, KRChoksey cites the ongoing consolidation and fight for market share among the big players in the sector, as reasons for the downward pressure on cement prices.

"The challenges observed in Q1FY25 are likely to persist into Q2FY25E, with cement prices continuing to face pressure, posing a significant challenge for the sector. The drop in cement prices in Q2FY25E can be attributed to ongoing sector consolidation, fierce competition to capture market share, and heavy monsoons," it stated.

UltraTech Cement Q2 Preview

In terms of market performance, UltraTech Cement shares have gained 17.15 per cent in the past six months, compared to the BSE Sensex’s rise of 10.68 per cent during the same period.

UltraTech Cement’s share price has appreciated 4.90 per cent in the year-to-date period, compared to the BSE Sensex’s rise of 11.94 per cent during the same period.

However, UltraTech Cement’s performance in the second quarter of financial year 2024-25 is likely to be subdued during the quarter, according to analysts tracking the sector.

For instance, HDFC Securities expects UltraTech to report a 4.7 per cent YoY decline in Q2 net sales, and a 15.6 per cent decline quarter-on-quarter, at Rs 15,256.5. The brokerage expects the company’s volumes to grow 2.1 per cent YoY, to 27.2 MT during the quarter.

The brokerage firm also expects the company’s net profit to decline 30.2 per cent annually and 46.3 per cent sequentially, to Rs 894.4 crore during the quarter, while Centrum Broking expects UltraTech’s profit after tax to decline 33.7 per cent annually and 48.9 per cent sequentially to Rs 849.5 crore.

Brokerage Speak

Sharekhan: The brokerage firm expects UltraTech Cement’s volumes to grow at 4.5 per cent Y-o-Y, while it has pegged the company’s realisations to decline by 7.6 per cent Y-o-Y.

Apart from that, Sharekhan expects the company’s Ebitda per tonne to decline by 16.4 per cent Y-o-Y and 20.7 per cent Q-o-Q, to Rs. 765.

Furthermore, the company’s negative operating leverage and weak realisations are expected to lead to a 26.6 per cent Y-o-Y decline in net earnings, according to Sharekhan.

Axis Securities: In contrast, Axis Securities expects UltraTech’s volume to grow on YoY basis led by new capacity ramp up. 

However, it expects revenue to come in lower annually due to lower realisation, and gross margins to be higher due to lower costs. 

The brokerage expects UltraTech’s Ebitda margin to contract on an annual basis due to lower realisations, while profit after tax is expected to come in lower due to declining revenue and a negative operating leverage. 

The brokerage firm also expects cost per tonne to be lower on a yearly and sequential basis.

KRChoksey Shares And Securities: The brokerage firm expects UltraTech Cement’s revenues to decline by 5 per cent on an annual basis, while it is likely to be partially offset by a slight growth in volumes which is expected to be at 27.1 MT, up 1.6% YoY. 

The cement company’s Ebitda is projected to decline by 9.4 per cent YoY, primarily driven by a lower realisation, though it is expected to be partially offset by a better fuel mix. 

Meanwhile, Ebitda per ton for the company is expected to decline 10.8 per cent annually, to Rs 853. 

Q1FY25 performance

UltraTech Cement had reported a flat net profit and revenue growth for the first quarter of financial year 2024-25 (Q1FY25). For the quarter under review, the company reported a consolidated net profit of Rs 1,696.59 crore, compared to Rs 1,688.45 crore a year ago. 

Revenue for the quarter was up 2 per cent at Rs 18,069 crore. Analysts had estimated a revenue of Rs 18,354 crore and adjusted net income at Rs 1,820 crore, according to Bloomberg estimates. 

On a sequential basis, UltraTech’s net profit had fallen 25 per cent, while profit before interest, depreciation and tax, the company said, stood at Rs 3,205 crore compared to Rs  3,223 crore a year ago.

The company’s domestic cement sales volume had registered a six per cent growth from a year back. However, UltraTech’s sales realisation declined by 5.7 per cent from a year ago and 2.4 per cent sequentially. 

UltraTech Outlook

Analysts at KRChoksey note that UltraTech’s commentary on its acquisition of India Cement, along with updates on the timeline and transaction details of Kesoram Industries’ acquisition will be key monitorables for the quarter ahead. 

Apart from that, the sector’s outlook, and how far and long UltraTech Cement is able to maintain its lead against new entrant, Adani Cement, which recently acquired ACC and Ambuja Cements apart from other smaller players, are also likely to remain on investors’ radar.