Keeping up their downward trajectory, shares of UltraTech Cement, a flagship company of the Aditya Birla Group, dropped 2 percent to ₹6,672 apiece during Wednesday's trade. In the last five trading sessions, the stock has fallen by about 7.70 percent.
The stock's decline was attributed to the company's latest quarterly earnings, which fell short of analyst expectations. UltraTech Cement reported a 37.90 percent drop in its consolidated net profit in Q3 to ₹1,062.58 crore from ₹1,710.14 crore in the same quarter of last year. Sequentially, the net profit was up by 40 percent.
The revenue from operations rose 19.53 percent to ₹15,520 crore during the quarter from ₹12,984 crore in the corresponding period of the last fiscal.
The company's operating margins were badly hit by the rise in input costs. During the October-December quarter, "energy and raw material costs were up 33 percent and 13 percent YoY, respectively, while they remained flat on a sequential basis," the company said in the earnings call.
As a result, the total operating expenses jumped nearly 24.78 percent to Rs. 13,185 crore in Q3 FY23 from Rs. 10,566 crore in the year ago quarter.
Meanwhile, the company achieved capacity utilisation of 83 percent, as opposed to 75 percent during Q3 FY22. During the quarter, UltraTech's consolidated sales volume was 25.86 million metric tonnes, registering a 12 percent YoY growth.
Following the release of the company's third-quarter numbers, domestic brokerage firms remained bullish on the stock, citing the company's strong fundamentals and growth drivers.
Brokerage house IDBI Capital maintained its "buy" rating on the stock with a revised target price of ₹7,965 apiece from ₹7,455 earlier. The brokerage emphasized that the continuation of a price hike and Capex boost from the Union Budget will be the key driver for the stock.
The company commissioned 5.5 mtpa of capacity in Q3 FY23, bringing the total capacity in India to 121.35 mtpa. Another 10 mtpa capacity is expected to be added in Q4 FY23E, and this will increase UTCEM’s capacity to 131.25 mtpa, the brokerage stated.
Motilal Oswal, on the other hand, said the company's results were below their estimates. A lower-than-estimated increase in realization and an unexpected increase in variable costs resulted in an earnings disappointment, it noted.
However, the brokerage reiterated its "buy" rating on the stock, given the company's robust expansion plans and structural cost improvement, and raised the target price to ₹7,875 apiece from ₹7,770 earlier.
UltraTech Cement is expanding its domestic grinding capacity to 131mtpa and 154mtpa by FY23E/FY25-26E, offering strong growth visibility. Motilal estimated a sales volume CAGR of 9 percent over FY22–25.
According to the brokerage, structural cost improvements initiatives such as the commissioning of WHRS and solar power plants (green power usage is expected to increase to 36% by FY25 from 20% currently) and the optimization of logistics costs through digitization and a reduction in lead distance will help structural cost improvement.
In addition, ICICI Direct Research stated that UltraTech delivered a mixed performance in the December quarter.
The company's strategic growth plan and prudent approach to generating higher cash flows and Capex while maintaining a strong balance sheet will keep the company ahead of the league, the brokerage pointed out.
ICICI remains positive on the stock and has maintained a "buy" rating with a target price of ₹8,050 apiece.
Along similar lines, HDFC Securities said it likes the company for its strong growth and margin outlook and balance sheet management. The brokerage keeps its "buy" call on the stock with a target price of Rs. 8,100 per share.
Likewise, Sharekhan maintains a positive outlook on the stock and has kept UltraTech Cement at a "buy" rating, with a target price of ₹8,100 apiece, citing the company's long-term growth potential and reasonable valuations.
42 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.