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Sustaining industry-leading margins

Shree Cement’s (SRCM) Q4FY21 standalone EBITDA (adjusted for higher employee costs pertaining to 9MFY21) of Rs12.3bn (up 14% YoY) was broadly in line with our and consensus estimates. While blended realisation surprised with 4% QoQ increase and may likely include higher power sales, it was offset by higher other expenses.

Volumes increased 19% YoY while blended EBITDA/te declined 4% YoY (flat QoQ) to industry-leading level of Rs1,501/te – both broadly in line with our estimates. UAE-based subsidiary Union Cement reported better performance with its EBITDA increasing from Rs370mn to Rs606mn QoQ. Factoring improved profitability of subsidiary, we raise our consolidated FY23E EBITDA by 3% and increase our target price to Rs31,800/sh (earlier Rs28,000/sh) based on unchanged 17x Mar’23E EV/E on half-yearly rollover. Maintain BUY. Key risks: lower demand / pricing, and any regulatory intervention.

* Standalone revenues increased 22% YoY to Rs39.3bn, broadly in line with our estimates. Cement plus clinker volumes increased 19% YoY (2-year CAGR of 6%) and 15% QoQ at 8.22mnte with some volumes getting impacted owing to transporters strike in Chhattisgarh in Mar’21. Reported blended realisation was up 4% QoQ and 3% YoY to Rs4,785/te (I-Sec: Rs4,665/te) led by price increases in the non-trade segment and also likely higher power sales QoQ.

* Adjusted standalone EBITDA rose 14% YoY to Rs12.3bn, while reported EBITDA grew 9% YoY to Rs11.8bn. Blended EBITDA/te (including power) declined 4% YoY (flat QoQ) to Rs1,501/te (I-Sec: Rs1,533/te). Total cost/te (adjusted) was up 6% YoY (+5% QoQ). Freight cost/te increased 2% QoQ and 12% YoY on higher diesel prices and increase in transporters freight in Chhattisgarh. Raw material and power & fuel costs/te rose 11% QoQ on higher fuel prices and likely higher power sales QoQ, though it remained almost flat YoY. Other expenses/te increased sharply by 8% QoQ and 14% YoY to Rs743/te owing to increase in packing costs, higher stores and consumables for maintenance, and higher ad spends owing to sponsorship of a football team at ISL. Reported employee costs increased from Rs1.7bn to Rs2.44bn YoY owing to increments for FY21 provided during Q4FY21 (we have apportioned the increase over four quarters for better comparison).

* Standalone PAT (adjusted for higher employee costs) increased 40% YoY to Rs8.2bn. Depreciation declined sharply by 31% YoY to Rs3.0bn, while other income increased 27% YoY to Rs1.2bn.

* Standalone net cash increased to Rs65bn in Mar’21 from Rs33bn in Mar’20: OCF generation was strong at Rs40.6bn post working capital release of Rs8.7bn in FY21, while the company incurred capex of Rs10bn and invested Rs1.2bn in the subsidiary. SRCM may generate FCF of Rs65bn after factoring-in the capex of Rs37bn over FY22E-FY23E with net cash increasing to >Rs130bn by FY23E.

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