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Better realisation offsets higher costs

* Shree Cement Limited’s (Shree) standalone Q1FY23 EBITDA declined 19% YoY/10% QoQ to Rs8.2bn, in-line with our and consensus estimates, as better-than-expected realisation balanced out higher-than-expected cost inflation. Blended EBITDA/ton declined 26% YoY/~4% QoQ to Rs1,091 (Emkay est. Rs1,085).

* Shree has planned growth capex of Rs73bn over the next three years, which will be mainly for ongoing projects such as 3.5mt/3mt integrated cement plants at Rajasthan/Andhra Pradesh, 3mt grinding unit at West Bengal, and a 106MW solar power plant. After completion of the ongoing projects, the company’s domestic capacity will reach 56mt by Dec’24 vs. 46.4mt currently.

* Besides, Shree has reiterated its guidance for installed capacity of 80mt (7% CAGR) by FY30 by adding capacities in favorable markets and exploring new geographies through both organic and inorganic routes.

* We have broadly maintained our FY23E-25E estimates. However, we have revised our TP to Rs23,550 (from Rs22,400) on a quarterly roll-over to Sep’23. Our DCFbased TP implies one-year forward EV/EBITDA of 15x. We maintain Buy.

* Standalone revenue increased 22% YoY to Rs42bn. Shree Cement Limited’s (Shree) volumes increased by 10% YoY/declined 7% QoQ to 7.5mt, in line with our estimate, while blended realization increased 10-11% YoY and QoQ to Rs5,604 vs. our estimate of a ~7% QoQ increase due to better-than-expected price hike in its key markets, higher trade mix, and reduction in price gap between non-trade and trade sales. Trade mix increased 400bps QoQ to 84% in Q1FY23.

* Standalone EBITDA declined 19% YoY/10% QoQ to Rs8.2bn. Total cost/ton rose 27% YoY/14% QoQ to Rs4,511 vs. our estimate of a 10% QoQ increase due to higher-thanexpected input cost. Average fuel costs for the clinker likely stood at Rs2.61/Kcal vs. Rs2.13/Kcal in Q4FY22. Lead distance declined 3kms QoQ to 470kms in Q1FY23. Depreciation increased 41% YoY/9% QoQ to Rs3.3bn owing to commissioning of 3mt grinding unit at Pune and 4mt clinker plant in Chhattisgarh in Q4FY22. Other income stood at negative Rs216mn owing to fair value loss of Rs960mn on investment. Accordingly, PAT declined 52% YoY/51% QoQ to Rs3.2bn in Q1FY23.

* Consolidated EBITDA declined 22% YoY/13% QoQ to Rs8bn. The company’s UAE subsidiary reported EBITDA loss of Rs180mn vs. EBITDA of Rs95mn and Rs82mn in Q1FY22/Q4FY22, respectively.

* Management has planned growth capex of Rs73bn over the next three years. Capex is mainly for ongoing projects such as 1) 3.8mt clinker and 3.5mt cement capacity in Nawalgarh, Rajasthan, at Rs35bn to be commissioned by Mar’24; 2) 3mt cement grinding unit at Rs7.5bn in West Bengal by Jun’23; 3) 1.5mt clinker and 3mt cement capacity in Guntur, Andhra Pradesh, at a capex of Rs25bn by Dec’24; and 4) a 106MW solar power plant at Rs5bn by Sep’22. After completion of the ongoing projects, its domestic capacity will reach 56mt by Dec’24 vs. 46.4mt currently.

* Management reiterates to achieve 80mt capacity target by FY30 (7% CAGR) by adding capacities in favorable markets and exploring newer geographies with no/low cannibalization with the existing plant

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