Maintain REDUCE on Shree Cement - Margin cools off as volumes fall sharply - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities.

Shree Cement's (SRCM) standalone revenue/EBITDA fell 23/22% YoY to Rs 23.26/7.01bn, and APAT grew 2% YoY to Rs 3.71bn. It reported lower-than-estimated EBITDA in 1QFY21, on slower NSR gain QoQ. Unitary EBITDA cooled off 9% QoQ (-1% YoY) to Rs 1,421/MT. The COVID impact also led to an EBITDA loss at the UAE subsidiary. Despite the volume decline in FY21E, we expect SRCM's standalone margin to expand on stable realisation and lower input costs. We maintain our REDUCE rating with an unchanged target price of Rs 20,900.

1QFY21 margin cools off QoQ/YoY: Sales volume fell 19/29% YoY/QoQ on sales loss mainly in April, while it picked up in May/June. Reported NSR rose 1% QoQ (down 1% YoY). However, adjusted for higher incentive realised in 4QFY20, cement NSR rose 3% QoQ. Unitary operating expense inflated 6% QoQ on higher freight costs (increased road-based sales and an increase in sales in the eastern region) and negative operating leverage. Input cost cooled off 1% on lower fuel cost. These moderated YoY operating expense decline at 1%, and unitary EBITDA fell 2% YoY (also -9% QoQ) to Rs 1,421/MT. While EBITDA fell 22%, higher treasury income (+143%) and lower depreciation (-33%, accelerated method) drove up APAT by 2% YoY. The UAE subsidiary is also hit hard in 1Q as revenue fell 42% YoY to Rs 1.54bn, leading to an EBITDA loss of Rs 127mn vs +Rs 453 mn YoY.

Outlook: We expect SRCM's volume to decline 12% in FY21E, followed by 15% rebound in FY22E. Despite lower sales, we expect unitary EBITDA to expand during FY21E, on stable realisation and lower pet coke/coal prices. We maintain our estimates and our REDUCE rating on the stock. Our target price of Rs 20,900/share is SOTP-based. We value SRCM's standalone cement/power businesses at 16.5/5x Jun'22E respectively and its UAE subsidiary at 1x BV.

Shares of SHREE CEMENT LTD. was last trading in BSE at Rs.21500 as compared to the previous close of Rs. 22388.95. The total number of shares traded during the day was 3868 in over 1610 trades.

The stock hit an intraday high of Rs. 22000 and intraday low of 21335.4. The net turnover during the day was Rs. 83199423.

Source : Equity Bulls

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