Shree Cements - Rich Valuations; Result Update Q1FY15 :: Edelweiss, PDF link

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Shree Cement’s (SRCM) Q1FY15 EBITDA of INR3.4bn (up 36% YoY) was 5% ahead of estimates. While performance of cement business was in line (volumes moved up 19% YoY to 3.88mt; realisations fell 9% QoQ and EBITDA/t jumped 23% YoY to INR824), the power segment surprised with tariffs rising 17% QoQ versus our flat estimate. The current weakness in cement prices in SRCM’s key market - North (where prices have dipped further by ~2% over and above the 9% drop seen in Q1FY15) - makes us prune our FY15 EBITDA estimate by ~4%, though partly cushioned by the improved power segment performance and recent diesel price cuts. Our FY16 estimates remain largely unchanged. In our view, the current valuations of 12.6x EV/EBITDA and USD235 EV/t on FY16 estimates factor in all the positives.

Cement: Performance in line with estimates

Cement volume growth remained robust, rising 19% YoY while realisations dipped ~9% QoQ due to prices weakness in the monsoon quarter. While the 4% QoQ drop in freight cost/t was a positive surprise, overall cost/t stood largely in line with higher-than-estimated rise in raw material and other expenses. Ergo, EBITDA/t of INR824 (up 23% YoY but down 30% QoQ) stood in line with our estimate. 

Power segment: Tariffs surprise

While power sales of 488mn units were 13% above estimate, the real surprise came from tariffs which rose 17% QoQ (versus our flat estimate). Ergo, EBITDA of the power segment at INR211mn stood higher than our INR58mn estimate.

LINK
https://www.edelweiss.in/research/Shree-Cements--Rich-Valuations;-Result-Update-Q1FY15/27536.html