Shree Cement: In a league of its own ::Kotak Sec, report

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In a league of its own. At 16X EV/EBITDA on benign assumptions, Shree Cement (SRCM) is scaling new valuation multiples that are at 25% premium to average largecap players. While we appreciate SRCM’s (1) capital efficiency, (2) consistently aheadof-industry utilization rates and (3) low cost of production, we are unable to reconcile the rich trading multiple compared to peers in a largely homogenous commodity business. Maintain SELL with a revised target price of `7,165 (`6,400 previously).

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Margin pressure seen; visibility intact… • Shree Cement :: ICICI Securities

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Pricing weakness weighs Shree Cement ::HDFC Sec, report

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Shree Cements - Sustained Cost Efficiency; Result Update Q2FY15 :: Edelweiss

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

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Investment Focus - Shree Cement: Buy :: Business Line

Shree Cement - Q4FY13 Result Update - Centrum

Operationally in-line results, maintain Buy
Shree Cement’s Q4FY13 result was in-line with our estimates on operational
parameters with EBITDA at Rs3.8bn (vs. est. Rs3.7bn) and OPM at 26.3% (vs.
est. 26.4%). Revenue during the quarter was at Rs14.4bn against our estimate
of Rs14.1bn primarily due to higher power sales volume of 795mn units (est.
680mn units). However, despite operational results being in-line with our
estimates, adjusted profit was at Rs2.8bn (vs. est. Rs1.5bn) due to lower
depreciation (Rs1.3bn vs. est. Rs1.95bn) and lower tax rate of 5.3% (vs. est.
20%). Cement demand and realization has recently been under pressure due
to slowdown in housing and infrastructure activities. Going forward, we
expect cement demand to recover in 2HFY14E, which should help the
manufacturers pass on the rise in input cost to consumers. The company aims
to double its cement capacity in the next five years with the help of free cash
flows. It has industry leading op. margin in the cement business (op. margin
of 25.9% in Q4FY13) and power business’ profitability has also improved in
recent quarters. Though we have reduced our EPS estimates by 3.6%/3.7% for
FY14E/FY15E considering low realization during the quarter, we prefer the
stock due to its lean cost-structure, ability to generate free cash flow and
consistent improvement in power business’ profitability. We maintain Buy
rating on the stock with a one year price target of Rs4,879 (earlier: Rs5,109).
Decline in cement segment’s revenue and higher depreciation impact profits:
Revenue of the company declined 1% YoY to Rs14.4bn led by 11% YoY decline in
cement segment’s revenue. Revenue from the power segment increased 78.2% YoY to
Rs3.1bn. Led by 33.9% decline in op. profit from the cement business, the company
reported 21.1% YoY decline in op. profit to Rs3.8bn and op. margin declined 6.7pp YoY
to 26.3%. Depreciation was up 62.8% YoY to Rs1.3bn. Lower op. profit and higher
depreciation resulted in 19.1% YoY decline in adj. PAT to Rs2.8bn.
Cement segment’s profitability impacted due to lower volume and realization:
Revenue from the cement segment declined 11% YoY to Rs11.4bn driven by 6% YoY
decline in sales volume to 3.2mt and 5.3% YoY decline in blended realization to
Rs3,602/tonne. Operating cost/tonne increased 7.7% YoY to Rs2,668/tonne due to
increase in raw material, freight, employee and energy costs. OPM of the cement
segment declined 8.9pp YoY to 25.9%. EBITDA/tonne was at Rs934 against
Rs1,326/tonne in Q5FY12.

Shree Cements Ltd -Rating : Sell Target : INR 3800 : FinQuest

Cement business disappoints, while lower depreciation and tax allowance
helps the bottom-line
Power division witnesses healthy growth while cost savings aids margin
expansion
Maintain 'Sell' rating on Shree Cement with a revised target price of Rs 3800
Despite disappointing cement dispatch growth, Shree Cement posted excellent bottom-line growth driven
primarily by decent growth in cement realization, excellent growth in the power business and lower
depreciation and tax outgo during Q3FY13 (Quarter ended March 2013).
The cement volumes fell 4% to 3.22 mn tonnes during the quarter, while the power volumes rose 68% to
722 mn units. But 3.5% Y-o-Y improvement in cement realization helped the total revenue to come in
7% higher Y-o-Y to Rs 14.72 bn. The cement realization during the quarter improved to Rs 3677 per
tonne as compared to Rs 3552 per tonnes during the corresponding quarter of the previous year. Coupled
with improvement in realization, fall in operating costs helped margin expansion by 144 bps to 28.6%
during the quarter under review.
The good news is that the power division is doing exceedingly well, while the cement realization has
improved despite poor demand. But the fact that the cement demand has remained poor despite the
quarter being the peak season for cement consumption in the northern markets where the company
operates is a major concern. The continuation of such scenario may result in steep price correction going
ahead, although the company expects the cement demand and price to increase by 10% and 5%
respectively in the next fiscal. Lower PET Coke prices and sharp fall in coal prices helped the company to
lower its fuel expenses and that in turn helped the EBIDTA margins during Q3FY13 expand 144 bps Y-o-
Y to 28.6%. As a percentage of net adjusted sales the power & fuel expenses contracted 215 bps to
24.1%, while the freight expenses fell 160 bps to 16.3% although the personnel expenses and other
operating expenses increased marginally.
The company has been following accelerated depreciation on certain assets for some time now and that
caused the depreciation allowance this time to be very low. It came in at Rs 1.27 bn (46% lower Y-o-Y),
while the tax expenses also came in 69% lower Y-o-Y at Rs 176 mn thus helping the bottom-line to post
136% gain during the quarter to Rs 2.74 bn.
Shree Cement has been aggressively expanding its cement and power capacity during the past several
years and the stabilization of the same in the days ahead bodes well for the company. We expect the
power business of the company to improve sharply, but the lacklustre growth of the cement segment is a
major concern. We reckon that if the cement demand remains poor the company would witness price fall
in the quarters ahead. We also see cost pressure going ahead driven by higher power & fuel cost and
freight expenses. Thus if cement price falls from these levels we see margin pressure going ahead for the
company's cement business. Although on the power business of the company we are quiet bullish.
Nevertheless we expect Shree Cement to maintain its market leadership position in the northern region
and would rather continue to outgrow the cement industry going ahead. Integrated operations have
enabled the company to post significantly higher operating efficiency than its larger peers in India.
Despite the relative macro strength of Shree Cement, we reckon that the share price
has run ahead of its valuation, hence maintain 'Sell' rating on the stock with a revised
target price of Rs 3800 (considering USD 140 per tonne replacement cost to value
the cement business)
We expect the company to maintain its cost leadership position in the cement industry, as it witnesses
significant ramp-up in its power business. We believe there would be pickup in pre election spending in
several states in the next 12 months while the demand supply mismatch would narrow in favor of demand
as the capacity expansion slows down. At the current price of Rs 4640, the stock is trading at PE and EV/
EBIDTA of 13.8x and 8x FY14E earnings. While we continue to be positive on Shree Cement operational
matrix, we are a bit worried about the cement industry macro at this point as the demand growth continues
to remain weak. We believe Shree Cement has run ahead of its valuation even after considering increased
cement replacement cost of USD 140 per tonne to value its cement business. We maintain our 'Sell'
rating on the stock with a revised one year price target of Rs 3800. We value the cement business at USD
140 per tonnes (in line with current replacement cost of USD 140- 150 per tonne). We value the power
business using discounted cash flow (DCF) approach to arrive at per share value of Rs 544. We estimate
the revenue and EPS for FY13 to come in at Rs 56.96 bn and Rs 277.8 respectively.

Shree Cement ::Centrum

Lower energy cost helps beat margin estimates
Shree Cement’s Q3FY13 result was above our estimate on op. parameters
(OPM at 27.8% vs. est. 24.7%) despite 2.5% QoQ decline in realization (vs. est.
increase of 2% QoQ) led by steep decline in energy cost. Decline in energy
cost was led by Rs502/tonne QoQ drop in average fuel price to Rs6,378/tonne.
Buoyed by a drop in energy cost, op. profit came at Rs4.1bn (vs. est. Rs3.9bn)
even though revenue at Rs14.6bn was 8.4% below estimated Rs15.9bn.
Higher op. profit coupled with lower tax rate (6% vs. est. 20%) helped the
company post a profit of Rs2.7bn (vs. est. Rs2.3bn). Though, cement price
recently was under pressure due to sluggish demand, we expect demand to
improve in 2HFY14E led by electoral spending (general elections are expected
in May 2014), improvement in capex activities of industries and higher
demand from the housing segment (due to our expectation of a decline in
interest rate). The company aims to double its cement capacity in the next five
years with the help of free cash flows. With net cash of Rs30bn (including
liquid investments) at the end of June ‘12, we expect the company to
generate free cash flow of Rs12.6bn (after factoring in capex of Rs27.5bn)
over FY13-15E. It has industry leading op. margin in the cement business (op.
margin of 28.7% in Q3FY13) and power business’ profitability has also
improved in the last two quarters. We maintain Buy rating on the stock with a
one year price target of Rs5,109 (earlier: Rs5,094).
 Higher revenue from power business leads to better performance: Revenue of
the company increased 5.9% YoY to Rs14.6bn led by 54.2% YoY growth of power
segments’ revenues. Revenue from the cement business was down 0.5% YoY to
Rs11.8bn. Led by 144.2% growth in op. profit from the power business, the
company reported 8.7% YoY growth in op. profit to Rs4.1bn and op. margin
improved 72bps YoY to 27.8%.
 Higher op. profit and lower depreciation and tax rate result in better profits:
Depreciation cost declined 46.1% YoY to Rs1.3bn. Tax rate was at 6% against 33%
in Q4FY12. Led by higher op. profit and lower depreciation and tax rate, profit
increased 136% YoY to Rs2.7bn.

Slowdown ahead — book profits on Shree Cement ::Business Line

Investors can consider selling their holdings in the stock of Shree Cement to lock into recent gains. At Rs 4,196, the stock trades at a multiple of 15 times its likely per share earnings for FY14, closer to larger peers such as ACC and Ambuja Cements.

In the last one year, the stock has zoomed 40 per cent on optimism over contributions from the power arm and higher offtake in cement in the first-half of the year. But from here the upside for the stock could be limited.

Cement demand growth has been muted in the last two months following poor demand from housing and infrastructure sectors. Shree Cement, in particular, has been facing challenges from capacity constraints, apart from slower demand growth. In February, Shree Cement (total cement capacity is 13.5 million tonnes a year) reported despatches of 9.67 lakh tonnes, down over 15 per cent from a year earlier. In the December-2012 quarter, the company’s cement segment reported a growth of 3.6 per cent in revenue with volumes registering a meagre six per cent growth and realisation dropping over two per cent.

Even over the next one year if there is a sluggish demand in cement, the company cannot take advantage of it as it is already running at 90 per cent capacity utilisation. The company’s new capacities are likely to be commissioned only by FY15. A 5-million-tonne a year grinding unit in Ras, Rajasthan and a 3-mt a year clinker capacity in Bihar are in the pipeline. Shree Cement derives a fourth of its revenue from power business. The company’s total power generation capacity is 560 MW now after the commissioning of 300 MW of thermal power (solely for open market trade) last year. In the December 2012 quarter, revenues from the power segment increased 88 per cent though the average tariff per unit fell, year-on-year. However, it is doubtful if the company can keep up with a similar growth rate given that the demand for merchant power may drop if the power distribution companies continue to see State Electricity Boards delaying payment.

In the December 2012 quarter, operating profit margins fell four percentage points sequentially to around 27 per cent (vs. 29 per cent in the same period last year). Benefit of price correction in coal and pet coke in the international market were to a large extent offset by rupee’s depreciation. There is also some uncertainty hanging over the stock from the ongoing investigation by the Competition Commission of India against cartelisation. On an enterprise value basis, the stock trades at around Rs 11,500 a tonne. Though the business includes the power arm, the valuation is significantly higher compared to ACC and Ambuja Cements.

Angel Broking - Shree Cement - RU1QFY2013 - Result Updates

Shree Cement - RU1QFY2013

Shree Cement: Margins surprise; upgrade to Buy :Centrum

Margins surprise; upgrade to Buy
Shree Cement’s Q5FY12 result was significantly above our and Bloomberg’s
consensus estimates with EBITDA at Rs4.8bn (vs. est. Rs3.7bn) and EBITDA
margin at 33.1% (vs. est. 25.7%). Higher operating profit of the company was
primarily due to higher sales volume of 3.37mt (vs. est. 3.11mt) and
realization of Rs3,805/tonne (vs. est. Rs3,727/tonne). Higher EBITDA coupled
with lower depreciation (Rs818mn vs. est. Rs1,737mn) and tax rate (8.3% vs.
est. 20%) resulted in profits of Rs3.5bn, significantly above our estimate of
Rs1.4bn. We believe that better realization in its key markets would result in
improvement in profits going forward and hence, we have revised our profit
estimates upwards by 29.1%/32.5% to Rs187.2/Rs264.3 for FY13E/FY14E
respectively. RoE and RoCE of the company are expected to be at 26.4% and
18.5% in FY14E against 13.5% and 4.2% in FY11 respectively. We expect the
company to generate free cash flow of Rs36.9bn over FY11-FY15E and net D/E
is expected to improve to -0.55x in FY14E against 0.18x in FY11. The company
will also benefit from its capacity expansion of 1.8mt in Ras, Rajasthan and
grinding unit of 1.5mt in Bihar (this will provide better access to East
markets). We have revised our rating on the stock to Buy (from Neutral) with a
price target of Rs4,049 (earlier: Rs2,924), upside of 20.1% from its CMP.

Shree Cement: TP: INR4,193 Buy ::Motilal oswal

 Shree Cement (SRCM) posted better than expected results for 5QFY12. EBITDA was INR4.8b, higher than our
estimate of INR3.9b, driven by strong cement realizations. Lower depreciation and tax further boosted reported
PAT to INR3.5b v/s our estimate of INR1.9b. The company has not disclosed the volume data for 5QFY12; all our
per-ton analysis is based on estimated volumes.
 Revenue grew 42.9% YoY (2% QoQ) to INR14.6b v/s our estimate of INR14.9b. Based on estimated volumes of
3.37m tons (up 25.1% YoY), blended realizations improved 6.9% QoQ (11.8% YoY) to INR3,805/ton v/s our
estimate of INR3,611/ton.
 Merchant power volumes were ~390m units (excluding traded power) against ~431m units in 4QFY12 and
259m units in 4QFY11. Revenue was INR1.7b against INR1.9b in 4QFY12 and INR1b in 1QFY12. Realizations
were INR4.44/unit against INR4.35/unit in 4QFY12 and INR4.3/unit in 1QFY12.
 Cement EBITDA/ton was INR1,324 (v/s our estimate of INR1,093), higher by ~INR184/ton QoQ and INR444/ton
YoY. EBITDA of merchant power business was ~INR350m (v/s our estimate of INR294m), led by higher than
expected EBITDA/unit at INR0.9/unit (v/s INR0.6 in 4QFY12).
 The company announced a final dividend of INR8/share. Including interim dividend of INR12/share, total
dividend for the 15-month FY12 works out to INR20/share.
Valuation and view: We are upgrading our normalized EPS by ~17%/16.4% for FY13/FY14 to INR300.7/INR345.2, led
by higher cement realizations. The stock trades at 9.8x FY14E EPS, and at an EV of 4.8x FY14E EBITDA and USD98/ton
(adjusting for Merchant Power assets of ~400MW). Maintain Buy, with revised SOTP-based target price of INR4,193.

Shree Cement: Surprisingly high volume growth:: Nomura

Shree Cement’s reported numbers for their extra quarter of their 15-month
year of FY12, which were better than our expectations on all accounts i.e.
1) surprisingly high implied volume growth of 40%y-y; 2) better
realisations; 3) lower-than-expected costs, especially power & fuel and
freight costs (on per-ton basis) and 4) improvement in power business at
EBITDA level. The better-than-expected operating performance for
cement business was reflected in EBITDA per tonne turning out at INR
1,311 per tonne, up 33%y-y and 31%q-q and significantly ahead of our
estimates of INR 981 per tonne. Bottom line was boosted by much lowerthan-
expected depreciation as well as tax write back, allowing the
company to post a record high profit of INR 3.5bn.
We are surprised at the high volume growth that Shree Cement has
witnessed during the quarter which is leaps and bounds ahead of the
YoY volume growth of 2%-5% reported by the other companies under
our coverage. This especially in an environment of pricing discipline
where companies focus more on pricing at the cost of market share.
With cement prices not witnessing any pressure to correct (even the
normal monsoon correction has been more muted this time round
leaving aside a couple of states) and costs looking much more stable
than they have done in the past two years, profitability of cement
companies in FY13 could move above the mid-cycle range. Our target
price and estimates for Shree Cement are under review.

Shree Cement: Stupendous quarter for cement, contribution improves from power :: Kotak Sec, PDF link

Shree Cement: Stupendous quarter for cement, contribution improves from
power
` Cement shines through - far ahead of peers on volumes and pricing
` Power improves contribution - though still short of full potential
` Valuations rich, volumes peaking; leave little room for upside - maintain
SELL

Sizzling Stocks: Shree Cement (Rs 2,924.5); HPCL (Rs 334.3) :Business Line

Shree Cement (Rs 2,924.5)

The stock jumped up almost 8 per cent with above average volumes on Friday, pushing its weekly gains to 10.4 per cent. Following a corrective decline from its all-time high of Rs 3,279, registered in early April 2012, the stock found support at Rs 2,270 during early June. Triggered by positive divergence in the daily relative strength index, the stock reversed direction and began to move higher. Since then it has been on a short-term uptrend. This upward journey appears to have resumed its long-term uptrend that has been in place from 2008 low of Rs 330. Intermediate-term trend is also up since September 2011 low of Rs 1,570. Both the daily and the weekly RSI are featuring in the bullish zone.

The stock can continue its upward momentum and test resistance at Rs 3,000 in the short-term and Rs 3,300 in the medium-term. Strong breakthrough of Rs 3,300 can push the stock higher to Rs 3,500. Conversely, inability to rally above Rs 3,300 can pull the stock down to Rs 2,700 or to Rs 2,400 in the same period. Next important support is at Rs 2,100.

Angel Broking - Shree Cement - RU4QFY2012 - Result Updates -PDF link

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Shree Cement - RU4QFY2012

Shree Cement - Q4FY12 Result-Microsec

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Shree Cement  Ltd has announced its Q4FY12 result. The company has reported revenues for the March 2012 quarter which increased   by 37.82% to Rs 1478.02 crores against 1072.45 crores during the corresponding year-ago period. The Net Profit for the quarter ended March 2012 is Rs. 144.28  crores as compared to Net Profit of Rs 65.73 crores of corresponding quarter ended March 2011.

Particulars	Consensus	Actual	Var (%)
Revenues	1477.80	1,478.02	0.01%
PAT	114.30	114.28	-0.02%
Ajd.EPS	32.80	32.80	0.00%

STANDALONE
Description	Q4FY12	Q3FY12	Q4FY11	QoQ(%)	YoY(%)	FY12	FY11	YOY(%)
Total Income	1,478.02	1,259.69	1072.45	17.33	37.82	3,514.13	3,643.24	-3.54
Total Expenditure	1,104.85	926.15	774.22	19.29	42.70	2,626.24	2,129.61	23.32
PBIDT(ExclOI)	373.17	333.54	298.23	11.88	25.13	887.90	1,513.63	-41.34
EBITDA margins	25.25	26.48	27.81	(123)bps	(256)bps	25.27	41.55	(1628)bps
Other Income	77.24	15.69	18.56	392.29	316.16	122.03	117.24	4.09
Operating Profit	450.40	349.23	316.79	28.97	42.18	1,009.93	1,630.87	-38.07
Interest	41.08	51.95	51.90	-20.92	-20.85	175.35	129.09	35.84
PBDT	406.49	297.26	230.63	36.75	76.25	786.11	1,438.34	-45.35
Depreciation	234.58	235.05	265.00	-0.20	-11.48	675.76	570.43	18.47
PBT	171.91	62.21	-34.37	176.34	-600.17	110.35	867.91	-87.29
Tax	57.63	3.02	-100.10	1808.28	-157.57	-99.35	191.79	-151.80
Profit After Tax	114.28	59.19	65.73	93.07	73.86	209.7	676.1	-68.98
PAT margins	7.73	4.70	6.13	303bps	160bps	5.97	18.56	(1259)bps
Equity Capital	34.84	34.84	34.84	0.00	0.00	34.84	34.84	0.00
EPS	32.8	16.99	18.87	93.05	73.82	60.19	194.08	-68.99
Figures in INR Crore.EPS represents Ajd. EPS

Regards,

Team Microsec Research