Maintain Neutral on Shree Cements - Motilal Oswal

SHREE CEMENTS 3QFY11: Below estimates, as cement business disappoints; Downgrading EBITDA 8-9%; Neutral

Shree's 3QFY11 revenues de-grew by 10% YoY (~9% QoQ growth) to Rs7.8b (vs est Rs8b) and recurring PAT stood at Rs61m (vs est Rs307m).

Cement volumes grew just by 2% YoY (~15% QoQ) to 2.62MT (vs est 2.45MT). Realizations declined 5.3% QoQ (~11% YoY) to Rs2,851/ton (vs est 3,100/ton).

Merchant power volumes continued to be under pressure, down 3.7% QoQ (~5% YoY growth) to 74m units.

However, 10.4% QoQ improvement in power realizations to Rs4.55/unit, drove ~6% QoQ growth in external power revenues to Rs335m (vs est Rs420m).

EBITDA de-grew 53% YoY (~10% QoQ growth) to Rs1.57bb, translating into EBITDA margins of 20.2% (vs est 21.4%) - a decline of 18.6pp YoY.

We downgrade our EBITDA estimates for FY11, FY12 & FY13 by 4%, 8% and 9%, respectively. However, based on guidance of the management, we are providing depreciation on accelerated WDV basis on the still to be commissioned 300MW merchant power plant, which is driving EPS downgrade of 89% in FY12 and 38% in FY13. Maintain Neutral with target price of Rs1,768 (SOTP based).

Source : Equity Bulls

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