Shree Cement - Consistent in sustaining growth and profitability - ICICI Securities

Shree Cement's (SRCM) Q3FY21 standalone EBITDA of Rs10.9bn (up 28% YoY) was better than our/ consensus estimates owing to higher realisation and lower cost. Blended realisation stood flat QoQ (+1.3% YoY) vs our estimate of 2% QoQ decline, while blended cost/te declined 3% YoY (flat QoQ). Volumes increased 15% YoY to 7.2mnte, in-line with estimates. Accordingly, blended EBITDA/te increased 12% YoY (flat QoQ) to Rs1,520/te (I-Sec: Rs1,391/te). SRCM's consistent track record of market share gains, coupled with industry-leading margins, justify its premium valuation, in our view. We broadly maintain our FY22E-FY23E EBITDA with target price unchanged at Rs28,000/sh based on 17x Sep'22E EV/E. Maintain BUY. Valuation at 14.8x FY22E EV/E and 12.4xFY23E EV/E is attractive, in our view. Key risks: Lower-than-expected demand/ pricing and any regulatory intervention.

- Standalone revenue increased 16% YoY to Rs33bn, broadly in-line with our estimates. Cement plus clinker volume increased 15% YoY at 7.2mnte owing to market share gains across regions. Blended realisation stood flat QoQ/ increased 1% YoY to Rs4,620/te (I-Sec: Rs4,531/te). Trade sales remained unchanged QoQ at 76% with blended cement share increasing to 79% from 75% QoQ. Odisha and Maharashtra grinding units may commission in Q4FY21.

- Standalone EBITDA increased 28% YoY to Rs10.9bn (I-Sec: Rs10bn). Blended EBITDA/te (including power) increased 12% YoY (flat QoQ) to Rs1,520/te (I-Sec: Rs1,391/te). Total cost/te declined 3% YoY (flat QoQ) owing to lower raw material plus power & fuel cost, which declined 11% YoY owing to low cost inventory of fuel and change in fuel mix (30% coal now). Freight cost/te increased 10% YoY on higher diesel prices and increase in lead distance. Other expenses/te (including employee costs) declined 8% YoY on better operating leverage. Depreciation declined sharply 33% YoY to Rs2.9bn, while other income increased 65% YoY to Rs1bn owing to higher treasury surplus. PAT doubled YoY to Rs6.3bn.

- Consolidated revenue/ EBITDA/ PAT grew 13%/28%/104% to Rs35bn/ Rs11.3bn/ Rs6.3bn, respectively, in Q3FY21. UAE-based Union Cement's EBITDA increased 22% YoY/ 3x QoQ to Rs370mn in Q3FY21.

- Net cash increased to Rs55bn in Dec'20 from Rs35bn in Mar'20: SRCM may generate FCF of Rs48bn after factoring-in the capex of Rs37bn over FY22E-FY23E with net cash increasing to >Rs100bn by FY23E. We model standalone volume CAGR of 13% over FY20-FY23E and expect blended EBITDA/te to increase to Rs1,606/te by FY23E from Rs1,474/te in FY20 (Rs1,484/te in 9MFY21).

Shares of SHREE CEMENT LTD. was last trading in BSE at Rs.22748.85 as compared to the previous close of Rs. 23102.2. The total number of shares traded during the day was 756 in over 390 trades.

The stock hit an intraday high of Rs. 23233.7 and intraday low of 22600. The net turnover during the day was Rs. 17334451.

Source : Equity Bulls

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