Buy Shree Cement - Below Par Performance - PINC Result Review

Below Par Performance

Shree Cement's (SRCM) Q1FY11 results were disappointing with a below par margin performance. The topline was inline with estimates at Rs9.4bn helped by Rs494mn in revenues from the power trading business. An increase in fuel costs and contribution of the low margin trading business led to a 1,545bps contraction in margins to 30.7%. Adding to it, increased depreciation charges on account of commissioning of new capacities resulted in a 63.6% fall in reported profits to Rs1.1bn.

Outlook: We have lowered our FY11E cement volume estimates by 3% to 10.7mn mt. With increase in power and fuel costs we have reduced FY11 margin estimates by 115bps to 35.1%. As a result FY11 and FY12 earnings estimates are lower by 16.3% and 22.5% to Rs192 and Rs206 respectively.

VALUATIONS AND RECOMMENDATION

We have rolled over to FY12 estimates with a target EV/EBITDA of 5.5x. We re-iterate our 'BUY' recommendation on the stock with a revised target price of Rs2,697 (earlier 2,639) discounting FY12E EBITDA 5.5x.

Source : Equity Bulls

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