Why is UltraTech Cement Down Despite Positive Brokerage Views?

The stock of UltraTech Cement is down about 5% on the bourses today (June 2, 2022) despite a few key brokerage firms having a ‘buy’ on the stock. Announcements of a capital expenditure plan of over Rs 12,000 crore, weak demand, and concerns over its margin erosion are among a few reasons for the stock to come under pressure. 

The weak cues of the cement industry have taken a toll on other cement stocks as well with ACC and Indian Cements down a little over 3%, Shree Cement down 5% and Ambuja Cement down 2%. 

Reasons for UltraTech stock pressure

While UltraTech announcement of its Capex plan of about Rs 12,886 crore to catch up with the increase in competition in the industry is a positive for the company in the long run, the timing of the announcement is the key. 

The cement industry is reeling under weak demand, low pricing power, stiff competition, and high input and fuel costs. Considering the challenging market conditions, the cement stocks including UltraTech could face near-term headwinds in terms of margin erosion and slowdown in revenue. This is one of the key factors for the correction in cement stocks.

However, a few key brokerage firms including Goldman Sachs, CLSA, Citi and Jefferies have given a ‘buy’ call on the cement major, UltraTech Cement. 

The Capex plan of the company is aimed to rise capacity by 22.6 million tonnes per annum. And it is expected to be through brownfield and greenfield projects. In a few reports, it was mentioned that the commercial operation from these units would go live in a phased manner by FY25. With this, the company would set up integrated or grinding units and bulk terminals across the country. 

Accordingly, many analysts the Capex expansion bodes well for the company in the long-term and could help cement its market leadership position in the market. Considering UltraTech Cement’s strong balance sheet and growth visibility, many analysts expect the company is better placed to withstand any short-term challenges such as low pricing power. 

About UltraTech Cement

UltraTech Cement is the leading cement manufacturer in the country with 90% capacity utilisation. It has about 23 integrated units and 27 grinding units across the country. It has a diversified product portfolio of over 50 products that cater to all building solutions. The company boasts one of the largest dealers’ networks of over 33,500 dealers and 74,500 retailers. 

Also, the company is among the top players globally with capacities in UAE, Sri Lanka and Bahrain. 

Financials 

Despite turbulent market conditions, UltraTech results were steady. The firm reported an increase of 47.6% y-o-y in its consolidated net profit of Rs 2,613 crore Q4 FY22. Its revenue from operations was up 9.45% y-o-y to Rs 15,767.28 crore during the same period. 

To read more about the company’s recent March quarter performance, read here.

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Research Analyst: Bavadharini KS