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Shree Cement
Subdued 3Q, Recovery ahead led by cement
Shree’s 3QFY11 profit was below our estimates, due to lower profit
in both cement and power business. We lower our profit estimate
64%/62% for FY11/12 owing to reduced profitability in both
businesses, and introduce FY13 estimates. We lower our target
price to `2,145 (`2,730 earlier). Post recent correction, stock factors
in most of the concerns & valuation looks attractive. Maintain Buy.
Realizations declined 11% yoy and 5% qoq at ~`2,850/ton in the
quarter. Cement aggregate volumes rose 2.2% yoy and 15% qoq to
2.62m tons. Drop of 22% yoy (up 6% qoq) in Power revenues (ex
inter-segmental) further impacted the decline in overall revenues.
Profitability takes a hit. Shree’s EBITDA stood at ~`565/ton (down
53% yoy) as an effect of lower realisations and increase in key costs
like petcoke and freight. Higher depreciation and interest expenses yoy
led to the 80% decline in PAT. Management believes the profitability is
likely to improve in 4QFY11 due to improvement in cement prices,
volumes and a modest reduction in prices of petcoke during Jan ’11.
Power’s performance subdued. Sale of power units was flat qoq
(~74m units) due to lower realizations (`4.5/unit). The division had
an EBITDA `100m (`85m qoq; `300m yoy). The company aims to
commission 300MW in 1HFY12 and a 1.5m-ton grinding unit in
4QFY11. Plans on further capex will only be finalized during FY12.
Valuation and risks. Our SOTP-value is `2,145: `1,854 for cement
at 5x FY12e EV/EBITDA and `291 for power at 0.5x P/BV. This
implies normalized PE of 7.6x and EV/ton of US$100. Risks: Rise in
petcoke price, lower-than-expected price of merchant power, cement.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Cement
Subdued 3Q, Recovery ahead led by cement
Shree’s 3QFY11 profit was below our estimates, due to lower profit
in both cement and power business. We lower our profit estimate
64%/62% for FY11/12 owing to reduced profitability in both
businesses, and introduce FY13 estimates. We lower our target
price to `2,145 (`2,730 earlier). Post recent correction, stock factors
in most of the concerns & valuation looks attractive. Maintain Buy.
Realizations declined 11% yoy and 5% qoq at ~`2,850/ton in the
quarter. Cement aggregate volumes rose 2.2% yoy and 15% qoq to
2.62m tons. Drop of 22% yoy (up 6% qoq) in Power revenues (ex
inter-segmental) further impacted the decline in overall revenues.
Profitability takes a hit. Shree’s EBITDA stood at ~`565/ton (down
53% yoy) as an effect of lower realisations and increase in key costs
like petcoke and freight. Higher depreciation and interest expenses yoy
led to the 80% decline in PAT. Management believes the profitability is
likely to improve in 4QFY11 due to improvement in cement prices,
volumes and a modest reduction in prices of petcoke during Jan ’11.
Power’s performance subdued. Sale of power units was flat qoq
(~74m units) due to lower realizations (`4.5/unit). The division had
an EBITDA `100m (`85m qoq; `300m yoy). The company aims to
commission 300MW in 1HFY12 and a 1.5m-ton grinding unit in
4QFY11. Plans on further capex will only be finalized during FY12.
Valuation and risks. Our SOTP-value is `2,145: `1,854 for cement
at 5x FY12e EV/EBITDA and `291 for power at 0.5x P/BV. This
implies normalized PE of 7.6x and EV/ton of US$100. Risks: Rise in
petcoke price, lower-than-expected price of merchant power, cement.
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