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Shree Cement 2QFY2013 performance highlights and results update

Contributed by Angel Broking

Shree Cement (SRCM) posted a strong performance on the bottom-line front (up 264% yoy) in 2QFY2013 which was ahead of our estimates. The stellar performance was led by the power business which registered a profit of Rs.99cr during the quarter vs a loss of Rs.112cr in the corresponding quarter of the previous year. Even on a sequential basis the power segment’s profit rose by 63.7%.

OPM at 25.9%, down 188bp yoy: SRCM’s cement business posted an EBITDA/tonne of Rs.1,003 for the quarter (down 10.4% on a yoy basis). The company’s realization/tonne declined by 2% yoy, which coupled with higher operating costs lead to a fall in the EBITDA/tonne. Cement prices fell in the north region as demand failed to pick-up post monsoons, resulting in lower cement realizations during the quarter for the company. SRCM’s cement division which clocked volume growth in excess of 25% in the last three quarters posted a modest 5.3% volume growth during the quarter. SRCM’s power business posted a strong performance with volumes rising three-fold on a yoy basis to 786MUs (256MU), aided by higher generation capacity. The EBITDA/unit of merchant power too rose yoy to Rs.0.9 (Rs.0.4). Overall, the OPM declined by 188bp yoy due to lower profitability of the cement business. Apart from higher operational income, the bottom-line was also boosted by lower depreciation (at Rs.82cr, down 65% yoy).

Outlook and valuation: We expect SRCM to post a 2.9% and 35% growth in its top-line and bottom-line respectively over FY2012-14E. At the current market price, we believe SRCM's cement business is trading at fair valuations of EV/tonne of US$155 on current capacity (US$114 on FY2014E capacity). Hence, we maintain our Neutral rating on the stock.