Shree Cement falls 3% as earnings lag behind peers
Premium- Shree Cement’s Q4FY21 Ebitda failed to measure up on the surprise quotient displayed by the majority of industry peers, Edelweiss Securities said
Mumbai: Shares of Shree Cements declined as much as 3% on Monday even as the cement maker reported a 49% jump in consolidated net profit to ₹799.79 crore in the March quarter. Analysts said the company's performance has lagged behind peers on several fronts.
At 01:06 pm, Shree Cement stock was at ₹26,936.55, down 2.44% from its previous close, while the benchmark index, Sensex gained 0.32% to 50700.74.
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The shares have underperformed those of UltraTech Cement Ltd by a huge margin in the past year.
“Shree Cement’s Q4FY21 Ebitda failed to measure up on the surprise quotient displayed by the majority of industry peers. Reported Ebitda stood more than 5% ahead of our estimate, whereas the beat was by 20-30% for other large peers," analysts at Edelweiss Securities Ltd said in a report on 21 May.
Consolidated EBITDA (earnings before interest, tax, depreciation and amortisation) increased by 17.13% to ₹1,237.78 crore, but margin dropped 151 bps to 29.44% compared to the year-ago quarter due to wage increments and higher freight and forwarding expenses.
Analysts at Motilal Oswal Financial Services in a note to clients said volume growth at 19% was weighed by lower clinker sales than peers.
"Shree lags behind peers in terms of volume growth, with UltraTech/ Ambuja/Dalmia delivering 30%/ 24%/ 24%. The management had raised equity through qualified institutional placement (QIP) at end calendar year 2019 to double capacity to 80mtpa by fiscal 2027. However, the execution has been slower than anticipated, with only one expansion (of 4mpta in East) having been announced to date. Coupled with low dividends (only 11% payout), expect this to result in an increase in cash piles to ₹13,400 crore in FY23 from ₹8500 crore in FY21 will keep return on equity (RoE) subdued".
"Shree is trading at 16 times FY23E Enterprise Value/EBITDA and add the value of its UAE operations ($70/t) and expect EBITDA to grow at a 15% CAGR over FY21–23 estimates, in line with other large-cap peers, on a 12% CAGR for cement sales volumes." The brokerage has a 'neutral' rating to the stock.
Finance cost in March quarter dropped 23.81% to ₹56.28 crore, while depreciation & amortisation expenses declined 28.94% to ₹330.21, and power & fuel cost advanced 0.64% to ₹702.58 crore compared to the corresponding quarter of last fiscal. Freight & forwarding expenses jumped 33.47% to ₹969.05 crore compared to the year-ago quarter.
Analysts at Emkay Global Financial though said Shree Cement offers the best long-term growth prospects with market share gain and robust return on invested captal (RoIC), driven by cost leadership in terms of both capex/ton and opex/ton.
"It may generate Free cash flow(FCF) of ₹5100 crore after factoring in capex of Rs3700 crore over FY22estimates-23 estimates as it enjoys industry-leading RoIC of 30% in FY21, which is expected to further expand by 900bps to 39% by FY23E, driven by rising asset turnover and margins," it said.
The brokerage maintained FY22-23 estimates and a 'buy' rating on the stock, implying 19 times one-year forward enterprise value by equity, and "the stock’s premium valuation at current 19.2 times EV/E already reflects our strong outlook, hence expect the stock’s returns to be driven essentially by earnings compounding".
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