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Weak 1QFY12 results
Shree Cement’s (SRCM IN) 1Q Ebitda declined 11% YoY to Rs2.6bn, 20%
lower than our estimates. SRCM’s exposure to north India and rise in cost
base continued to weigh on the performance as its Ebitda came in 5-20%
below cement majors at Rs880/t. Power segment performance too was
sub-par due to lower realisations and higher costs. We cut our Ebitda
estimates by 4-6%; the stock appears to be fully valued at 6.5x EV/Ebitda
in the context of our weak outlook for cement sector. Retain Upf.
1Q Ebitda 20% below our estimates
SRCM’s 1Q Ebitda declined 11% YoY to Rs2.6bn, 20% lower than our
estimates due to lower than expected performance in both the segments.
While cement Ebitda declined 5% YoY to Rs2.4bn, power Ebitda declined 45%
and formed 8% of overall Ebitda. Erratic trend in depreciation continued (-
40% QoQ) due to SRCM’s aggressive depreciation policy. Tax rate came-in at
~6%, lower than our estimates and should see gradual increase in the
coming quarters to average at ~20% for FY12. Reported earnings declined
40% YoY to Rs633m (not comparable due to depreciation policy).
SRCM’s Ebitda/t remains at a significant discount to cement majors
SRCM’s volumes rose 8% to 2.69mt, in-line with estimates, thanks to ~130%
rise in clinker volumes (0.27mt; off a low base). Cement realisations rose 4%
QoQ to Rs179/bag which were also in-line, though unit costs were higher
(+3% QoQ). Cement Ebitda/t at Rs880/t was 5-25% lower than cement
majors viz. ACC, Ambuja, UltraTech. In this context, it is useful to note that
historically, SRCM’s margins had been highest in our coverage universe, which
is not the case now due to higher petcoke prices, entire north exposure.
Weak performance in power segment as well
SRCM’s power Ebitda declined 45% YoY and came sharply below estimates at
Rs220m. Volumes (238m units; -7% QoQ) and realisations (Rs4.3/unit; -9%
QoQ) were lower. Unit cost surprisingly rose 27% QoQ and was the key
reason for disappointment. The company would commission the 300MW
power plants in phases by Sep-11 which should help the volumes.
Cut Ebitda est. by 4-6% over FY12-13; Upf (rev. target: Rs1,850)
We cut our Ebitda estimates by 4-6% to factor in lower 1Q; sharp changes in
our net earning estimates are due to change in management’s revised
depreciation guidance (Rs6bn for FY12 cf. Rs10bn in the past). We also cut
our target price to Rs1,850/sh and remain maintain our Upf rating on the
stock as upsides from current levels (valuations at 6.5x FY12CL EV/Ebitda)
would be capped given the capacity surpluses in the industry.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Weak 1QFY12 results
Shree Cement’s (SRCM IN) 1Q Ebitda declined 11% YoY to Rs2.6bn, 20%
lower than our estimates. SRCM’s exposure to north India and rise in cost
base continued to weigh on the performance as its Ebitda came in 5-20%
below cement majors at Rs880/t. Power segment performance too was
sub-par due to lower realisations and higher costs. We cut our Ebitda
estimates by 4-6%; the stock appears to be fully valued at 6.5x EV/Ebitda
in the context of our weak outlook for cement sector. Retain Upf.
1Q Ebitda 20% below our estimates
SRCM’s 1Q Ebitda declined 11% YoY to Rs2.6bn, 20% lower than our
estimates due to lower than expected performance in both the segments.
While cement Ebitda declined 5% YoY to Rs2.4bn, power Ebitda declined 45%
and formed 8% of overall Ebitda. Erratic trend in depreciation continued (-
40% QoQ) due to SRCM’s aggressive depreciation policy. Tax rate came-in at
~6%, lower than our estimates and should see gradual increase in the
coming quarters to average at ~20% for FY12. Reported earnings declined
40% YoY to Rs633m (not comparable due to depreciation policy).
SRCM’s Ebitda/t remains at a significant discount to cement majors
SRCM’s volumes rose 8% to 2.69mt, in-line with estimates, thanks to ~130%
rise in clinker volumes (0.27mt; off a low base). Cement realisations rose 4%
QoQ to Rs179/bag which were also in-line, though unit costs were higher
(+3% QoQ). Cement Ebitda/t at Rs880/t was 5-25% lower than cement
majors viz. ACC, Ambuja, UltraTech. In this context, it is useful to note that
historically, SRCM’s margins had been highest in our coverage universe, which
is not the case now due to higher petcoke prices, entire north exposure.
Weak performance in power segment as well
SRCM’s power Ebitda declined 45% YoY and came sharply below estimates at
Rs220m. Volumes (238m units; -7% QoQ) and realisations (Rs4.3/unit; -9%
QoQ) were lower. Unit cost surprisingly rose 27% QoQ and was the key
reason for disappointment. The company would commission the 300MW
power plants in phases by Sep-11 which should help the volumes.
Cut Ebitda est. by 4-6% over FY12-13; Upf (rev. target: Rs1,850)
We cut our Ebitda estimates by 4-6% to factor in lower 1Q; sharp changes in
our net earning estimates are due to change in management’s revised
depreciation guidance (Rs6bn for FY12 cf. Rs10bn in the past). We also cut
our target price to Rs1,850/sh and remain maintain our Upf rating on the
stock as upsides from current levels (valuations at 6.5x FY12CL EV/Ebitda)
would be capped given the capacity surpluses in the industry.
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