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Research
Shree Cement - 1QFY13 starts on a strong note; Cement EBITDA per MT at Rs1230; BUY - Karvy
Posted On : 2012-10-17 19:03:42( TIMEZONE : IST )
Rock-strong quarter - Shree Cement (SRCM) delivered another above expectations results as its EBITDA doubled YoY to Rs3.94bn (+18% ahead of our est of Rs3.3bn & street est of Rs3.7bn). Whilst we were factoring in 2% QoQ lower net cement realisation, it rose +3% QoQ thereby boosting YoY realisation growth of 12%. Additionally, SRCM continues to grow ahead of industry as its sales volume surged 25% YoY (-10% QoQ) to 3 mnMT. Captive power sales rose 45x YoY to 316mn units (our est of Rs200 mn units) vs. 7mn units in Sep-11 qtr & 390 mn units in Jun-12 qtr. These boosted topline growth to 55% YoY (+10% higher than our est). Power realization came in-line with our est of Rs3.4 per unit.
Operating costs rate remained in-line with our est of ~Rs2,700 per MT (+1% YoY & +9% QoQ). Lower sequential volumes (-10% QoQ) resulted in higher QoQ opex. SRCM continues to remain one of the most cost efficient cement producers in India as its opex is at-least Rs700-1000 per MT lower than the cement majors which more than compensates for its Rs700-800 lower realisation vs. these companies. Subsequently, SRCM continues to deliver industry leading EBITDA per MT. During the quarter, SRCM registered EBITDA per MT of Rs1230 (ahead of our est Rs1,064) - which is one the best in the monsoon quarters over the last five years.
PAT surges 5x to Rs2.3bn: SRCM depreciation has seemingly stabilized QoQ and stood 40% lower YoY to Rs942mn (our est of Rs1.5bn) which boosted PAT growth by 478% YoY to Rs2.9bn (vs. our est of Rs1.3bn).
Re-iterate our "BUY" recommendation on the stock: In our last sector report dated 11 Oct 2012 (Cement 2.0 - Supply discipline sustainable; Profitability on upswing) we have discussed that the industry's pricing power should remain strong and cement prices should continue to rise thereby driving profitability. SRCM should further benefit on its cost leadership and on account of the rising demand for its captive power sales. We maintain our BUY recommendation on the stock valuing the cement business at 6.7x FY14E EBITDA & the power business at 7.8x FY14E EBITDA.
