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Shree Cements: Highlights of our recent meeting with management
What has changed?
• We recently met the management of Shree Cement (SRCM) (market cap of
Rs62bn) to get an update on its cement and power business activities.
Impact
• SRCM is one of the largest North-based players in the country, with an
installed capacity of 13.5m tonnes and a clinker capacity of 8.5m tonnes. The
company said it is planning to build up its power portfolio by increasing
capacity to 560MW, from 260MW, by September 2011. It expects to sell
excess power of about 420MW in the open market at merchant rates to India’s
state governments, other utility companies, and through power exchange.
• The company expects its two 150MW power plants to start operating from June
2011 and September 2011, respectively, for which fuel and tariffs have not yet
been tied up. After its power expansion, the company will have capacity of
560MW, of which it says 140MW will be used for captive purposes.
• The company said it had a flat year-on-year cement volume of about 7.5m
tonnes for the first nine months of FY11, while the average selling price for
cement fell by 5-6% due to low demand. This, along with increases in
petroleum-coke prices and freight costs, has led to a sharp fall in its EBITDA
margin, according to the company.
• For 1H FY11, the company recorded sales of Rs16.6bn, an EBITDA margin of
26% (FY10 cement EBITDA margin of about 41%), and PAT of Rs1.16bn.
• SRCM uses petroleum coke as fuel for its cement business, the price of which
has increased by 40-50% over the past six-to-nine months. The current price is
hovering at about Rs8,400 per tonne.
• The company said it has increased its cement capacity to 13.5m tonnes
currently, from 2.6m tonnes for FY05.
• It said its plan to incur capex of Rs25bn to increase its cement capacity and set
up a 300MW power plant is on track and would be completed by FY12. It said
it would spend Rs11bn for FY11, of which it had spent Rs8bn as at 31
December 2010. It targets capex of Rs4bn for FY12.
Valuation
• The stock is trading currently at a PER of 26x, based on the company’s 1H
FY11 annualised EPS, and in terms of EV/tonne, the stock is trading currently
at US$102/tonne (capacity of 13.5m tonnes).
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Cements: Highlights of our recent meeting with management
What has changed?
• We recently met the management of Shree Cement (SRCM) (market cap of
Rs62bn) to get an update on its cement and power business activities.
Impact
• SRCM is one of the largest North-based players in the country, with an
installed capacity of 13.5m tonnes and a clinker capacity of 8.5m tonnes. The
company said it is planning to build up its power portfolio by increasing
capacity to 560MW, from 260MW, by September 2011. It expects to sell
excess power of about 420MW in the open market at merchant rates to India’s
state governments, other utility companies, and through power exchange.
• The company expects its two 150MW power plants to start operating from June
2011 and September 2011, respectively, for which fuel and tariffs have not yet
been tied up. After its power expansion, the company will have capacity of
560MW, of which it says 140MW will be used for captive purposes.
• The company said it had a flat year-on-year cement volume of about 7.5m
tonnes for the first nine months of FY11, while the average selling price for
cement fell by 5-6% due to low demand. This, along with increases in
petroleum-coke prices and freight costs, has led to a sharp fall in its EBITDA
margin, according to the company.
• For 1H FY11, the company recorded sales of Rs16.6bn, an EBITDA margin of
26% (FY10 cement EBITDA margin of about 41%), and PAT of Rs1.16bn.
• SRCM uses petroleum coke as fuel for its cement business, the price of which
has increased by 40-50% over the past six-to-nine months. The current price is
hovering at about Rs8,400 per tonne.
• The company said it has increased its cement capacity to 13.5m tonnes
currently, from 2.6m tonnes for FY05.
• It said its plan to incur capex of Rs25bn to increase its cement capacity and set
up a 300MW power plant is on track and would be completed by FY12. It said
it would spend Rs11bn for FY11, of which it had spent Rs8bn as at 31
December 2010. It targets capex of Rs4bn for FY12.
Valuation
• The stock is trading currently at a PER of 26x, based on the company’s 1H
FY11 annualised EPS, and in terms of EV/tonne, the stock is trading currently
at US$102/tonne (capacity of 13.5m tonnes).
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