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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).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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Cement business soft, higher contribution from power comes to the rescue Shree Cement reported net sales of `15.4 bn (17% yoy, -4% qoq), EBITDA of `3 bn (13% yoy, -10% qoq) and net income of `937 mn (-19% yoy, -14% qoq) against our estimates of `15.1 bn, `2.7 bn and `733 mn respectively. Cement EBITDA (adjusted) at `2.5 bn (+8% yoy, -17% qoq) was aided by higher volumes at 3.8 mn tons (10% yoy, -2% qoq). However, lower realizations at `3,547/ton (+3% yoy,-3% qoq) led to 15% qoq decline in EBITDA/ton to `659 (- 2% yoy). The power business continued to report strong performance with external sale of 491 mn units (+20% yoy) that contributed sales of `2 bn and EBITDA of `560 mn (62% yoy, 32% qoq) with average realizations of `3.9/kwh and EBITDA of `1.1/kwh. Benefit of higher EBITDA contribution from the power business were lost to higher depreciation charge of `2 bn (`1.6 bn estimated by KIE) leading to a 6% outperformance at net income level. Cement realizations decline `5/bag qoq from weak pricing environment in North/Central Shree Cement’s realizations declined 3% qoq to `3,547/ton (+3% yoy) reflecting the weak prices in the company’s key markets in North and Central regions. The volume trajectory remained strong with 11% yoy growth to 3.8 mn tons (-2% qoq) during the quarter, though we expect volume growth to moderate from here given new capacities are likely to be commissioned by March 2015 (2 mtpa) and December 2015 (2 mtpa). The 2% yoy decline in EBITDA/ton despite 3% yoy increase in realizations was led by cost inflation of 5% yoy due to higher power & fuel and freight costs. Maintain SELL with revised TP of `7,165 At an enterprise value of US$6.2 bn, Shree Cement is valued higher than pan-India players such as ACC (EV of US$4.6 bn) and Ambuja (EV of US$6.1 bn), although the latter two have significantly higher capacity base and a geographically diversified sales presence. At 16.3X EV/EBITDA on FY2016E earnings with a sharp 30% CAGR in EBITDA, the trading multiples are demanding and highest in the sector. We maintain our SELL rating but increase our target price to `7,165 (`6,400 earlier) from rollover to September 2016E valuations. We have revised our earnings estimates for FY2015E and FY2016E to `207/share (`255/share earlier) and `350/share (`375/share earlier) primarily to account for higher depreciation expense as recorded during the quarter.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04022015rq.pdf
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).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Cement business soft, higher contribution from power comes to the rescue Shree Cement reported net sales of `15.4 bn (17% yoy, -4% qoq), EBITDA of `3 bn (13% yoy, -10% qoq) and net income of `937 mn (-19% yoy, -14% qoq) against our estimates of `15.1 bn, `2.7 bn and `733 mn respectively. Cement EBITDA (adjusted) at `2.5 bn (+8% yoy, -17% qoq) was aided by higher volumes at 3.8 mn tons (10% yoy, -2% qoq). However, lower realizations at `3,547/ton (+3% yoy,-3% qoq) led to 15% qoq decline in EBITDA/ton to `659 (- 2% yoy). The power business continued to report strong performance with external sale of 491 mn units (+20% yoy) that contributed sales of `2 bn and EBITDA of `560 mn (62% yoy, 32% qoq) with average realizations of `3.9/kwh and EBITDA of `1.1/kwh. Benefit of higher EBITDA contribution from the power business were lost to higher depreciation charge of `2 bn (`1.6 bn estimated by KIE) leading to a 6% outperformance at net income level. Cement realizations decline `5/bag qoq from weak pricing environment in North/Central Shree Cement’s realizations declined 3% qoq to `3,547/ton (+3% yoy) reflecting the weak prices in the company’s key markets in North and Central regions. The volume trajectory remained strong with 11% yoy growth to 3.8 mn tons (-2% qoq) during the quarter, though we expect volume growth to moderate from here given new capacities are likely to be commissioned by March 2015 (2 mtpa) and December 2015 (2 mtpa). The 2% yoy decline in EBITDA/ton despite 3% yoy increase in realizations was led by cost inflation of 5% yoy due to higher power & fuel and freight costs. Maintain SELL with revised TP of `7,165 At an enterprise value of US$6.2 bn, Shree Cement is valued higher than pan-India players such as ACC (EV of US$4.6 bn) and Ambuja (EV of US$6.1 bn), although the latter two have significantly higher capacity base and a geographically diversified sales presence. At 16.3X EV/EBITDA on FY2016E earnings with a sharp 30% CAGR in EBITDA, the trading multiples are demanding and highest in the sector. We maintain our SELL rating but increase our target price to `7,165 (`6,400 earlier) from rollover to September 2016E valuations. We have revised our earnings estimates for FY2015E and FY2016E to `207/share (`255/share earlier) and `350/share (`375/share earlier) primarily to account for higher depreciation expense as recorded during the quarter.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04022015rq.pdf
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