Shree Cement - Rating: Hold; Target price: Rs4,015 - Centrum

Net sales should decline 4.8% YoY to Rs13.6bn driven by 28.2% YoY decline in revenue from the power segment. EBITDA is expected to decline 22.6% YoY to Rs2.9bn led by lower profit from the cement and power business.

Sales volume (Cement and Clinker) is expected to increase 11.5% YoY to 3.3mt. Blended realization is expected to decline 8.7% YoY to Rs3,400/tonne.

Power sales volume is expected to be 600mn units against 786mn units (from captive power only) in Q2FY13 and 310mn units in Q1FY14. Power realization is expected to be Rs3.85/kwh against Rs3.97/kwh in Q2FY13.

EBITDA margin is expected to decline 4.9pp YoY to 21.1% primarily due to higher employee, energy and freight costs. EBITDA/tonne of cement is expected at Rs705 in the quarter against Rs1,017 in Q2FY13 and Rs670 in Q1FY14.

Adjusted profit is expected to decline 17.1% YoY to Rs1.9bn. Adjusted PAT margin is expected to be 13.7% against 15.8% in Q2FY13 and 13.9% in Q1FY14.

Earnings and target price revised downwards: We have revised sales volume assumptions for FY14E upwards by 0.8% to 13.7mt. However, we have revised realization assumptions downwards by 4.9%/4.1%/4.1% for FY14E/FY15E/FY16E considering continued pressure on cement prices in the North region. Due to lower realization estimates our EBITDA estimates are getting revised downwards by 13.8%/11.1%/11% for FY14E/FY15E/FY16E. We maintain Hold rating on the stock with a revised price target of Rs4,015 (earlier: Rs4,528), downside of 7.5% from the CMP.

Source : Equity Bulls

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