In addition, high input costs led to a sharp contraction in the consolidated operating margin to 20% from 28% in the same period last year. As of Q2FY22, the margin was 24%.

Despite weak performance, shares of Ultratech rose about 3% on NSE on Monday. “Ultratech’s third quarter earnings were disappointing on volumes and margins due to weak demand in November. However, investors were reassured by management’s upbeat comments on demand and lower costs. This should impact Ultratech’s valuations as earnings improve in a seasonal fourth quarter,” said Mangesh Bhadang, research analyst, institutional equities at Nirmal Bang Securities Ltd.

In the last quarter, on a per ton basis, Ultratech’s logistics costs increased 4% year-on-year, energy cost increased 39% and raw material cost increased 7% year-on-year . On a post-earnings conference call, management said the third quarter was a difficult quarter with an unexpected drop in demand in November and a consequent impact on prices. Unseasonable rainfall in some areas, a shortage of labor and sand availability, and a construction ban in the National Capital Region were factors that weighed on demand in November. However, demand was back on track in December, with capacity utilization for the month improving to around 84% from 75% capacity utilization throughout the quarter, indicating better demand. Management further stated that the fourth quarter started on a positive note with improved demand and pricing. Urban housing is growing rapidly and new government infrastructure projects are expected to support demand in the March quarter, management said.

Management said prices for major inputs, petroleum coke and international coal, had started to decline from their peak but remained high year-on-year. The benefits of recent cost declines should begin to materially reflect from Q1FY23.

Meanwhile, in CY21, Ultratech beat close competitor Shree Cement Ltd by a wide margin, with its shares up 44% from the latter’s 12% return.

“Our estimates for FY23 show Ultratech stock trading at around 14x EV/Ebitda. With debt reduction, we see its gap with Shree Cement (FY23 EV/Ebitda of 17x) In addition, a problem with Shree is its relatively high exposure to the East, which faces oversupply.As such, Shree Cement stock could continue to underperform Ultratech, from less in the short term,” Bhadang said. EV is enterprise value. Ebitda is earnings before interest, taxes, depreciation and amortization.

Ultratech would commit a capex of ₹965 crores for modernization and expansion of white cement capacity in phases. It also commissioned its Bara Grinding Unit Line II in Uttar Pradesh, which has a cement capacity of 2 million tonnes per annum (mtpa). As such, in FY22, Ultratech commissioned 3.2 mtpy of new cement capacity, as planned, bringing its manufacturing capacity to 114.55 mtpy.

In addition, the company has also managed to reduce its debt. On a consolidated basis, its net debt decreased by approximately ₹190 crore sequentially at ₹6,147 crores with an improvement in Net Debt to Ebitda from 0.55 times in the March quarter to 0.49 times in the December quarter. Continued debt reduction could help stock performance.