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Research
Shree Cement - Q4FY12 Result update - Centrum
Posted On : 2012-05-16 11:12:50( TIMEZONE : IST )
Result better than estimates; upgrade to Buy
Shree Cement's Q4FY12 result was better than our estimates (after adjusting for Rs649.7mn government grants/subsidies credited to capital reserve directly) with adjusted Revenue at Rs15.4bn, 9.5% above our estimates and adjusted EBITDA at Rs4.4bn (vs. est. Rs4.1bn). Adjusted profit (adjusted for government grants/subsidies credited to reserves and Rs369.9mn related to provisions of earlier years) at Rs 1.3bn was 21.6% above our estimate primarily due to better operating profit and higher other income. The company has changed its accounting year end to June from March earlier and hence, we have revised our forecasts to factor in this change. Though clarity on long-term contracts of the merchant power business is yet to emerge, the cement business of the company is expected to benefit from improving demand-supply dynamics in the North region and we expect an improvement in utilization rate and pricing power of cement manufacturers in the region. We upgrade our rating on the stock from Hold to Buy with a revised price target of Rs2,924, upside of 11% from CMP.
- Cement division's improved performance leads to better results and help to beat our estimates : Adjusted revenue of the company (adjusted for Rs649.7mn government grants/subsidies credited to capital reserve directly) increased 44.2% YoY to Rs15.4bn (est. Rs14.1bn) led by 32% YoY growth of cement segments' revenues and 56.4% YoY growth in merchant power revenues. EBITDA of the company increased 48% YoY to Rs4.4bn (est. Rs4.1bn) led by 68.5% improvement in cement segment's EBITDA. EBITDA margin improved 74bps YoY to 28.4% and Adjusted PAT increased 52.3% YoY to Rs1.3bn (est. Rs1.1bn).
- Higher realization and sales volume lead to improved performance of cement division: Higher cement realization (up 9.4% YoY) and sales volume (up 20.5% YoY) led to 31.9% YoY growth in cement segment's revenue to Rs12.5bn. Higher revenues and reduction in fuel costs led to 68.5% increase in cement segment's operating profit to Rs4.1bn and EBITDA margin of the cement division improved 7.1pp YoY to 32.8%. Operating cost/tonne of cement declined 1% YoY (9.3% QoQ) to Rs2,427/tonne. EBITDA/tonne of the cement division improved 39.8% YoY (5.6% QoQ) to Rs1,183/tonne.
- Income form power business improves but margins decline significantly: Revenue from external power sales increased 56.4% YoY to Rs1.87bn primarily due to 67.1% YoY increase in merchant power sales to 430mn units. Realization from power declined 6.4% YoY to Rs4.35/unit. EBITDA from this segment declined 48.1% YoY to Rs270mn and EBITDA margin declined 29pp YoY to 14.4%.
- Earnings estimates modified to factor in the change in accounting year: The company has changed its accounting year end to June from March earlier, and hence, we have modified our estimates to factor in this change.
- Valuation attractive, upgrade to Buy: At the CMP, the stock trades at 13.2x FY14E EPS, 5x EV/EBITDA, 2.7x P/BV and EV/tonne of US$96.3 (considering cement business only). We upgrade our rating on the stock to Buy from Hold with a revised price target of Rs2,924 (earlier Rs2,823), upside of 11% from CMP.
