Recommendations » India

Shree Cement 1QFY2013 performance highlights and results update

Contributed by Angel Broking

Shree Cement (SRCM) posted a strong performance on the bottom-line front (up 537% yoy) in 1QFY2013 which was ahead of our estimates. The stellar performance was on account of a 22% yoy growth in cement volumes, coupled with a better-than-estimated 14.8% yoy growth in cement realization. We remain Neutral on the stock.

OPM at 29.7%, up 649bp yoy: SRCMRs.s cement business posted an EBITDA/tonne of Rs.1,186 for the quarter (up 27% on a yoy basis). The sharp improvement in EBITDA/tonne was aided by higher realization. Cement prices remained high during the quarter due to delayed monsoons. Thus, cement realization was higher by 2.7% even on a qoq basis. Merchant power volumes rose multifold on a yoy basis to 307MUs, aided by higher generation capacity. The EBITDA/unit of merchant power sold stood at Rs.1.05. The OPM stood at 29.7%, up 649bp on a yoy basis. Apart from a strong operational performance, the bottom-line was also boosted by lower depreciation which stood at Rs.94cr, down 41.9% yoy.

Outlook and valuation: We expect SRCM to post a 2.6% and 20.3% growth in its top-line and bottom-line respectively over FY2012-14E. The companyRs.s dominant presence in the high growth northern market is expected to result in a strong profit growth. The stock has run up steeply over the past few months, which is largely on the back of strong volume growth in the cement business and the same is way ahead of the industry growth rate. However, at the current market price, we believe SRCMRs.s cement business is trading at fair valuations of EV/tonne of US$138 on current capacity (US$91 on FY2014E capacity). Hence, we maintain our Neutral recommendation on the stock.