India Cements Shares Drop 13% as Q3 Losses Expand

resr 5paisa Research Team

Last Updated: 22nd January 2025 - 05:45 pm

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The cement manufacturer reported a significant year-on-year surge in net loss, expanding to ₹428 crore in Q3FY25 from a relatively modest ₹16 crore loss in the corresponding quarter last year. Additionally, an exceptional loss of ₹190 crore further strained its financials for the quarter ending December 31, 2024.

Revenue from operations dropped sharply by 16.5% YoY, declining to ₹903.2 crore from ₹1,081.9 crore in Q3FY24, indicating subdued demand and pricing challenges in an unfavorable macroeconomic landscape.

On the operational front, the situation deteriorated further. India Cements posted an EBITDA loss of ₹188.4 crore in Q3FY25, a stark contrast to the ₹49 crore EBITDA profit recorded in the same quarter of the previous year. This downturn in profitability highlights rising costs and inefficiencies in operations.

The share price of India Cements plummeted by 13% to ₹303 per share on January 22, following dismal Q3FY25 results that underscored the company’s worsening financial struggles.

Acquisition by UltraTech Cement

In a significant corporate move, the Competition Commission of India (CCI) recently approved a ₹7,000 crore deal allowing UltraTech Cement, led by billionaire Kumar Mangalam Birla, to acquire a majority stake in India Cements. UltraTech Cement increased its holding from 32.7% to 55.5%, effectively turning India Cements into its subsidiary.

Market analysts view this acquisition as a potential turning point for the struggling company. UltraTech’s operational expertise, economies of scale, cost-efficiency measures, and widespread distribution network are expected to enhance India Cements' competitiveness. However, integration challenges and the time required for strategic synergies to take effect could delay any immediate recovery in financial performance.

Industry Challenges and Future Outlook

The cement industry in India has been grappling with multiple challenges, including fluctuating raw material costs, regulatory hurdles, and demand slowdowns. Higher energy prices and increasing transportation costs have significantly impacted margins for cement producers, with India Cements being no exception. The company’s declining profitability can be attributed to these external pressures, coupled with internal inefficiencies that have compounded its financial woes.

Despite UltraTech’s backing, analysts caution that India Cements may continue to struggle in the short term due to persistently weak demand, heightened competition, and macroeconomic uncertainties. The company will need to undertake aggressive cost-cutting measures, enhance operational efficiency, and focus on regaining market share to reverse its fortunes.

Analysts at Motilal Oswal have retained a 'Sell' rating on the stock, valuing India Cements based on a replacement cost (EV/t of $100) and setting a target price of ₹310. Given the ongoing financial distress, market participants remain wary of the stock's near-term performance, although long-term prospects could improve if UltraTech successfully streamlines operations and implements strategic initiatives.

While the cement sector is expected to benefit from government infrastructure projects and increasing urbanization, the pace of recovery for individual companies like India Cements remains uncertain. Investors will be closely monitoring upcoming earnings reports, cost management strategies, and demand trends before reassessing their outlook on the stock.

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