Reliance Securities - Shree Cement Q2 FY23 Result - First Cut

Mr. Arafat Saiyed - Senior Research Analyst at Reliance Securities.

Shree Cement: 2QFY23 First Cut: Cost Pressure Continues

Shree Cement's EBITDA was lower than our estimate, due to higher than expected input costs while volumes were higher than our expectation.

Sales volume was up 18% YoY (down 0.6% QoQ) to 7.5mn tonnes and was 2.2% higher than our estimate of 7.3mn tonnes. While, avg. realization increased by a 1% YoY and down 10% QoQ to Rs 5,070/tonne, the same was lower than our estimate of Rs5,421. Shree Cement reported revenue of Rs37.8bn, up 18% YoY and down 10% QoQ, largely in-line with our estimate of Rs38.9bn.

EBITDA stood at Rs5.3bn (down, 42% YoY and 36% QoQ), lower than our estimate of Rs 6.2bn, while EBITDA/tonne stood at Rs701 in 2QFY23 vs. Rs1,421 in 2QFY22 and Rs1,092 in 1QFY23, against our estimate of Rs765. Further, total cost/tonne increased by 22% YoY and down 3% QoQ at Rs4,369. EBITDA margin stood at 13.8%, down 1,419bps YoY and down 565bps QoQ, vs our estimate of 15.9%.

Cost pressure continued to be the primary factor. Total expenditure was up 41% YoY but was down 4% QoQ. Raw material prices contributed to the overall costs shooting up significantly as it rose 59% YoY but was 3% lower QoQ. This steep increase is due to higher coal and pet coke prices, thus leading to higher than-expected overall cost.

Consequently Adjusted net profit fell 67% YoY and 40% QoQ to Rs1.9bn, against our estimate of Rs2.9bn.

Our View: SRCM continues to remain one of the leading players in Northern and Eastern market despite UTCEM ramping up its presence through organic and inorganic ways. We believe SRCM will continue to strike right balance between growth and balance-sheet, going forward. Cost leadership has aided the company to generate better-than-the-industry's profitability over the years, which is expected to sustain, going forward supported by focus on premium products (which currently accounts for ~7% of its total volume). Further, SRCM has recommenced its investment plan to double the capacity in 6-7 years. The management's strategy and ability has helped the stock to enjoy a premium valuation over peers. We have a BUY rating on the stock with a Target Price of Rs23,500.

Shares of SHREE CEMENT LIMITED was last trading in BSE at Rs. 21162.90 as compared to the previous close of Rs. 21057.60. The total number of shares traded during the day was 1010 in over 472 trades.

The stock hit an intraday high of Rs. 21500.00 and intraday low of 20984.95. The net turnover during the day was Rs. 21433117.00.

Source : Equity Bulls

Keywords

SHREECEMENT INE070A01015 Q2FY23 H1FY23 Result FirstCut RelianceSecurities