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Should you buy UltraTech Cement stock given that its fourth quarter net profit dropped by 32%?

Major cement manufacturer UltraTech Cement released its January-March quarter statistics on Friday. The company's consolidated net sales for the quarter under review came in at Rs 18,436 crores, up 19% from Rs 15,557 crores during the same period the year before.

In comparison to a normalized profit of Rs. 1,478 crores (before one-time extraordinary gains) in the same quarter of the previous year, UltraTech Cement's net profit for Q4FY23 was Rs. 1,666 crores. In comparison to the same period the year before, its profit before interest, depreciation, and taxes was Rs 3,444 crores as opposed to Rs 3,165 crores.

The combined net sales of UltraTech Cement for the whole fiscal year 2023 increased by 21% to Rs 62,338 crores from Rs 51,708 previous year. Compared to a normalized profit of Rs 5,667 crores in the same time the previous year, the profit after tax for the current quarter was Rs 5,064 crores.

Dividend for UltraTech Cement

The company's board of directors proposed a dividend yielding 38% at a rate of Rs 38 per equity share with a face value of Rs 10, totaling Rs 1,097.01 crores. In accordance with the Finance Act of 2020's regulations, the firm said in an exchange filing, “the dividend shall be taxed in the hands of shareholders at applicable rates of tax and the Company shall withhold tax at source in an appropriate manner.”

The Board of Directors has proposed a dividend of Rs 38 per share, or Rs 1,097 crore, for the fiscal year that ended on 31/0312023.

Do you want to buy it?

In reaction to the cement industry's leading company's Q4FY23 financial reports, brokers have expressed their evaluations and comments on the stock.

The company had a strong fourth quarter of fiscal year 23 with volumes increasing by more than 14% YoY, a realisation drop stopping 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, according to ICICI Securities Ltd.

EBITDA, or earnings before interest, taxes, depreciation, and amortization, exceeded forecasts by more than 4% to come in at Rs 33.2 billion for the firm. The blended EBITDA/tonne figure of Rs. 1,048 was higher than anticipated by more than 4%.

But we believe there is little room to increase our earnings forecast. Despite lower fuel prices, we continue to believe that the weak cement pricing environment poses a risk of downgrading consensus estimates. The overhang of aggressive development by the Adani group and ongoing capacity expansions throughout the sector also prevent an increase in our value multiple. We retain our 'hold' rating and maintained target price of Rs 7,295 while continuing to value the firm at 15 times FY25E EV/EBITDA, the brokerage said in its research.

We continue to be optimistic about the company's volume prospects in the ensuing quarters, especially in light of access to more capacity and higher demand. The margin should be kept in control by softening fuel costs and UTCEM's cost-saving initiatives, notwithstanding the difficulty of range-bound fluctuation in cement prices. As a result, we reaffirm “accumulate” and basically stick with our profit projections for FY24 and FY25. Our target price is increased from Rs. 8,325 to Rs. 8,638 based on 15.5 times (unchanged) FY25E EV/EBITDA as a result of our rollover to March 2025E from December 2024E, according to Elara Securities (India) Pvt Ltd.

Shares of UltraTech Cement concluded Friday's trading session on the BSE slightly higher by 0.71 percent at Rs 7,554.60.

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