Hold Shree Cement; target of Rs 22040: ICICI Direct

ICICI Direct's research report on Shree Cement

Shree Cements reported numbers that were moderately below our estimates on all fronts. Shree Cement’s topline recorded a 16.9% YoY increase to Rs 3285 (below I-direct estimate of Rs 3386 crore) led by a 13.3% growth in volumes to 7.3 MT (in line with I-direct estimate of 7.3 MT). While realisations were healthy in the cement segment, power realisations dragged blended realisations lower to 1.6% growth YoY Rs 4227/t (vs. I-direct estimate of Rs 4366/t). On the margin front, EBITDA margins for Q4FY19 were at 25.8% rising 342 bps YoY (vs. I-direct estimate of 25.8%). Consequently, EBITDA has grown 34.7% YoY to Rs 847.8 crore (vs. I-direct estimate of Rs 903.9 crore). PAT was significantly lower than our estimate due to higher depreciation & amortisation expenses due to depreciation of the new plant in the south. Consequently, PAT registered a 19.6% decline YoY to Rs 321 crore (vs. I-direct estimate: Rs 461.4 crore).

Outlook

Shree’s leadership position in the north, strengthening footprints in the east, entry in the southern region and expansion in the west will enable the company to improve its domestic presence. Further focus on higher realisations and cost optimization would lead to higher margins and return metrics with RoCE expected to improve to 19.2% by FY21E. Hence, we remain positive on the business. However, considering the current valuations, there is limited room for upside. We value Shree Cement at Rs 22040/share at 19x FY21E EV/EBITDA.

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