• Hero MotoCorp: This two-wheeler maker’s stock fell 10% in the past five sessions after the Russia-Ukraine invasion escalated. The already weak demand situation in this sector is worsened by the semiconductor shortage that has been affecting all auto manufacturers. The semiconductor shortage is set to intensify with the Russia-Ukraine war. Russia is a major exporter of palladium, which is used for the pins that conduct electricity on a chip. Palladium prices have soared close to 16% in the last four days fearing a supply chain disruption. Ukraine is a major supplier of neon gas, constituting about 95% of US supply. Neon gas is used in the critical laser lithography process in semiconductor manufacturing. The company is also affected by this shortage mainly in the motorcycle segment, which constitutes around 94% of total units sold. Hero MotoCorp's Q3FY22 net profit fell 31% YoY to Rs 703.7 crore and revenue fell 18.5% to Rs 8,133.3 crore. The company’s sales volumes fell 30% YoY to 12.92 lakh units owing to subdued consumer demand. With weak demand in the domestic market, the two-wheeler manufacturers are diversifying their revenue mix by focusing more on exports.  In  February 2022, domestic wholesale volumes fell 21% YoY to 3,31,462 units owing to weak demand from rural areas. However, exports rose 48% YoY to 26,792 units. Hero plans to launch a wide range of premium two-wheelers in FY22 and is currently set to launch its first-ever electric two-wheeler in March. However, the semiconductor shortage may hamper production.

• Hindalco: The aluminium manufacturer’s stock bucked the fall in markets, rising 17% in four consecutive sessions. Hindalco’s revenue grew 60% YoY to Rs 50,453 crore and net profit jumped 96% to Rs 3,675 crore in Q3FY22 on strong volume growth in its aluminium and copper businesses. The aluminium business’ revenue rose 55.7% YoY to Rs 8,243 crore, and revenue from the copper business rose 67.2% YoY to Rs 10,255 crore in Q3FY22.

Aluminium prices have increased 40% in the last two-and-a-half months initially due to a drop in output triggered by power problems and recently hit new highs amid the Russia-Ukraine conflict. With prices hitting an all-time high of $3,560 per tonne, the company stands to benefit as its integration would limit the cost increase.

The company was well-positioned to capitalize on the steady rise in aluminium and copper prices as it is the largest integrated primary producer of aluminium in Asia. It expects the domestic demand for aluminium and aluminium FRP (flat-rolled products) to grow by 10% and 6% respectively in Q4FY22. The demand surge will be led by sectors like packaging, consumer durables, electronic products and building & construction demand will improve due to government projects. A favourable macro-environment, demand driven by a resumption in economic activities and rising prices are likely to aid further growth of the company.

• Ambuja Cements: Shares of this cement maker were down 3% on Wednesday, and nearly 22% in a month. Rising fuel prices  are happening even as the company was already reeling under rising costs of raw material and energy, which doesn’t bode well for margins. Power and fuel costs of the company rose 58% and raw material costs 7.9% in Q4CY21. Energy and logistics costs together make up around 60% of the overall costs of cement makers. Due to rising input costs, the company had a disappointing Q4CY21, with revenues rising 2% YoY to Rs 7,709.6 crore and net profit falling 60.3% to Rs 290.6 crore due to the headwinds from hikes in raw material prices, power, and fuel costs.

Ambuja currently has a cement capacity of 31 million tonnes and plans to enhance its capacity to 50 MTPA (million tonnes per annum). With the current Rs 3,500 crore investment, it expects to achieve 40 MTPA by 2024. The long-term demand for the cement industry is on strong footing driven by growing urbanisation. In the short-to-medium term, key cost items like coal, crude, and metals continue to increase in international markets and the prices of fuel are expected to move up post assembly elections in India. With the conflict in Ukraine bearing unpredictable consequences and having an indirect effect on most sectors, the business is in treacherous waters for the time being.

• Sun Pharmaceuticals: This pharmaceuticals company’s stock fell 10% after reaching a one-year high of Rs 902.8 last month. Sun Pharma derives about 18% of its revenues from the emerging market segment that includes Russia, Romania, South Africa, and Brazil. Previously, the company had acquired Biosintez Russia in 2016 for $ 24 million to enhance local manufacturing capability. Sun Pharma also has a finished dose manufacturing unit in Russia. Revenues from these markets may be affected by the Russian invasion and sanctions,  with two major factors in play. One factor is the supply chain disruption and the second is the depreciation of the Russian ruble. After Russian troops entered Ukraine on Feb 24, the ruble fell more than 20% against the dollar.

Sun Pharma beat Trendlyne’s Forecaster revenue and profit estimates in Q3FY22. Sun Pharma’s revenue rose 12% to Rs 9,863.1 crore and its profits increased by 7.6% to Rs 2,058.8 crore. Its operating profit margin remained flat despite the prevailing pricing pressure in the US formulations business. The company’s management believes that emerging markets continue to be the key focus area to grow in order to diversify its geographical mix and to move towards higher-margin products. ICICI Securities has a ‘BUY’ rating on Sun Pharma with a target price of Rs 1,075, indicating an upside of 30%. The brokerage expects the company’s revenue to grow at a CAGR of 10.5% over FY21-24E. However, in the short term, the Russia-Ukraine war might slow revenue growth.

• JSW Steel: This steel maker's stock was up by 2.4% on Wednesday as the Russia-Ukraine conflict intensified. The Nifty Metal index rose 4% on Monday, as analysts from Edelweiss predict a positive upturn for steel stocks.

Russia and Ukraine constitute around 10-11% of the global steel export market. If the conflict extends, it may hamper short to medium-term supplies in the European markets. This may prove beneficial for Indian steel makers as Europe imports almost 12% of steel from India. JSW Steel commenced commercial production at its Dolvi plant and is on the way to ramp up production in FY23. The company plans to increase its domestic production to 350 lakh tonnes per annum. The company’s steel production was up 15% YoY to 16.5 lakh tonnes in January 2022.

Analysts from BOB Capital Markets expect robust cash flows to help reduce its net debt by 1.2X by FY24. BOB Caps is positive on the stock and raised its target price by 22% to Rs 810 maintaining a ‘Buy’ rating. However, analysts from ICICI Securities and Prabhudas Lilladher are sceptical because of lower EBITDA in Q3FY22 as consolidated EBITDA fell 12% QoQ to Rs 9,132 crore. Another hiccup is the rising cost of coking coal which may shoot up the cost of raw material consumption. However, the management says the rise in price is well within the company’s guidance.