Angel Broking recommends Neutral on Shree Cement - 3QFY2014 Result Update

For 3QFY2014, Shree Cement (SRCM)'s bottom-line performance was below our estimates. Its Cement division posted a healthy performance with an 18% yoy increase in volume and a 6.3% yoy improvement in realization. However, the Power division continued to post weak results with volumes and realization down by 25.8% yoy and 17.2% yoy respectively.

OPM at 25.7%, down 287bp yoy: For 3QFY2014 SRCM posted a 12.8% yoy increase in net sales to Rs. 1,660cr, led by a strong 25.3% yoy increase in net sales of Cement division to Rs. 1,487cr. The Cement division posted a strong 18% yoy increase in volume to 3.84mn tonne and a 6.3% yoy improvement in realization to Rs. 3,861/tonne, aided by a temporary shutdown of a competitor's plant in the northern region during the quarter. However, the Power division continued to be impacted by poor demand due to slowdown in industrial activity and posted a 38.5 yoy decline in revenue. The Power division's EBITDA fell by 93% yoy to Rs. 0.06/unit. During the quarter, the company had extraordinary expenses of Rs. 74cr and prior period tax credit of Rs. 68cr. Adjusted for the same, the company's PAT fell by 17% yoy to Rs. 228cr.

Outlook and valuation: We expect SRCM to post a 19.3% CAGR in its top-line over FY2014-16E. The bottom-line is expected to grow at a CAGR of 30.3% over the same period. At the current market price, the stock is trading at EV/tonne of US$101 on FY2016E capacity. We maintain our Neutral rating on the stock.

Source : Equity Bulls

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