Below is the View On Shree Cement FY18 Annual Report Takeaways and Analysis by Binod Kumar Modi Sr. Research Analyst Reliance Securities.
While there has been an increase in debt balance led by new capacities, D/E at 0.1x and healthy OCF generation (Rs18.8bn) continue to remain impressive. Further, low contingent liabilities and continued thrust on growth bode well. We expect its premium multiple to sustain, which can be supported by thin liquidity and meagre non-institutional holdings. We have a BUY rating on the stock with a TP of Rs21,500.
* Cement Clinker Ratio Maintains at 1.47x: With the clinker production at 15.1mnT (+10.5% YoY), SCL maintained CC ratio at 1.47x, which continues to look better than UltraTech (1.29x) and Ramco (1.37x).
* Foray into Renewable Energy: SCL ventured into wind energy space and commissioned 14.7MW in FY18 in Karnataka and 6.3MW is to be commissioned shortly. The wind power generated would be used captively for Karnataka integrated cement unit.
* Completed Projects in FY18: 1) 2.6mnT Line 2 Clinker unit at Baloda Bazar, Raipur, 2) 3.6mnT GU at Sriganganagar, Rajasthan, and, 3) 2mnT GU at Aurangabad, Bihar. SCL added Rs19bn in its tangible gross block including land (Rs2.2bn) and plant & machineries (Rs14.9bn).
* ECB Increased by Rs16.1bn: SCL took fresh ECBs aggregating Rs16.1bn in FY18 to Rs21.3bn. Out of total ECBs, Rs5.2bn is at fixed rate of 8.3% including effects of currency movement and interest rate swaps. Further, remaining Rs16.1bn is taken at an average rate of 3.5-3.7% without the effects of currency movements. As all these ECBs are repayable not before May’20, we do not envisage any major risk from currently fluctuations till FY20.
* Contingent Liabilities Remain Lowest: Contingent Liabilities (excl CCI’s pending contention) reduced to Rs4.17bn v/s Rs4.4bn, which is 4.7% of net worth. It is the lowest compared to its peers.
* Remuneration of Key Personals: Mr. H.M. Bangur- MD (Rs42.5cr v/s Rs38.2cr), Mr. Prashant Bangur- JMD (Rs19.5cr v/s Rs15.3cr), and Mr. Subhash Jajoo- CFO (Rs0.84cr v/s Rs0.82cr). Notably, MD’s remuneration includes Rs21cr as PLI.
* Overseas Acquisition: Currently, Union Cement Co. (target co. With 3.3mnT clinker and 4mnT cement capacity) is in the process of delisting. The acquisition process (92.83% stake at US$305mn) is to be completed by Sept’18.
* Karnataka Operation: 3mnT integrated cement unit is expected to be completed in Dec’18.
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