Shree Cement - Margins get power boost - ElaraCapital

Lower depreciation and tax boost bottomline

Shree Cement net profit was in line with our expectations(INR 2.7 bn v v/s INR 2.8 bn),however EBITDA was marginally lower than our expectations due to lower than expected volumes.

Revenues increased 1% YoY and 2% QoQ to INR 14.6 bn. The EBITDA margins for the quarter improved by 170 bps QoQ to 27.8% due to fall in petcoke prices. The adjusted PAT for the quarter increased 102.9% YoY(20.4% QoQ) to INR 2.7 bn on the back of higher other income and lower depreciation and tax rate.

EBITDA/tonne improves QoQ by 5.3% due to lower cost and higher prices

Cement & clinker volumes declined by 9.1%.YoY (up 5.4% QoQ) to 3.16 mn tones due to subdued demand. Realisations for the cement business improved by INR 24/tonne QoQ (0.6% QoQ) to INR 3,747/tonne. Cost per tonne fell by 1.1% QoQ due to decline in power and fuel cost. The EBITDA/tonne for Q3FY13 stood at INR 1,072/tonne as compared to INR 1,018 in previous quarter and INR 1,183 in last year.

Higher merchant sales and lower cost improves profits of power business

Power business volumes were up 68% YoY to 722mn units as demand for merchant power was strong during the quarter. Cost per unit fell by 22.5% YoY and 7.9% QoQ due to fall in pet coke prices .The EBITDA per unit for Q3FY13 stood at INR0.9/kwh as compared to INR 0.6/kwh last year.

Maintain Accumulate with a target price of INR 5,000

At CMP of INR 4,414 Shree Cement is trading at EV per tonne USD 119 on FY15 capacity, a discount of ~28% over its peers. We believe that valuation gap is unjustified considering the efficient cement operations, healthy balance sheet and favorable regional mix. Thus, we maintain our Accumulate rating on the stock with revised price target of INR 5,000.

Source : Equity Bulls

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