Buy Shree Cement; target of Rs 27,500: ICICI Direct

ICICI Direct's research report on Shree Cement

Shree Cement’s operational performance for Q2FY21 was ahead of our estimates led by improved sales volumes and cost efficiencies. Reported revenue growth was 7.9% YoY to Rs 3022.4 crore (vs. I-direct estimate: Rs 2,964.1 crore). Volumes grew 14% YoY to 6.5 MT while blended realisations were down 5.4% YoY to Rs 4636/t (vs. I-direct estimate. Rs 4,882/t) as cement prices stayed weak in north and eastern region in Q2. On the cost front, blended costs/tonne of cement were at Rs 3,147 (vs. I-direct estimate of Rs 3,283/t), down 7.2% YoY. This was driven mainly by lower power costs per tonne, which fell 30% YoY on a per tonne basis. This led to healthy EBITDA growth of 17% YoY to Rs 988 crore. It remained above our estimated EBITDA of Rs 841 crore. Blended EBITDA/t for Q2FY21 came in at Rs 1,515/t, up 2.7% YoY (vs. I-direct estimate of Rs 1,301/t). Other income was up 77% to Rs 102 crore. This, along with a sharp fall in depreciation charge (down 34.9% YoY to Rs 278.6 crore) led the company to report better than estimated PAT of Rs 547.3 crore (up 77.1% YoY) vs. our estimated PAT of Rs 387.3 crore. The company has announced 3.5-4 MT clinker capacity expansion entailing capex of Rs 1000 crore at Raipur. It is likely to get commissioned by September 2022E. It aims to double its total capacity in next seven years.

Outlook

Shree Cement has added capacity by entering non-core regions without jeopardising its profitability and return ratios. We expect the company to continue its leadership on costs. This would, in turn, help it to consistently gain market share with improved profitability and return matrix. Thus, it remains a long term structural play. Hence, we maintain our BUY rating on the company with a revised TP of Rs 27,500/share (19x FY23E EV/EBITDA).

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