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Shree Cement (SRCM) reported a healthy quarter on the revenue front as net sales came in at INR 40.7bn (+15% YoY and +8% QoQ) led by volume (+23% YoY; +8% QoQ) while realisation was flat QoQ. EBITDA was INR 7.1bn (down 14% YoY; +35% QoQ) and EBITDA / tonne stood at INR 881 / tonne (down 30% YoY; +26% QoQ). Total operating cost was steady at INR 4,185 / tonne (+1% YoY; down 4% QoQ). By FY30, SRCM envisages to reach 80MTPA capacity with capex primarily funded through internal accruals. SRCM also continues to enjoy cost leadership and is focussing on brand building / premiumisation to maintain industry leading EBITDA margin. For 4QFY23, EBITDA / tonne is likely to head towards INR 1,000 / tonne on account of lower power and fuel cost and higher volume. We have a ‘BUY’ Rating on the stock, ascribing a 16x 1yr fwd EV / EBITDA (in line with UltraTech) and arriving at a Sep’23 TP of INR 24,660 with a possible upside risk with respect to acquisitions.

*Healthy volume growth to continue: In 3QFY23, net sales came in at INR 40.69bn (+15% YoY; +8% QoQ) driven by high volume, 8.03MT (7.73MT of cement + 0.3MT of clinker; +23% YoY; +8% QoQ). In 9MFY23 volume / revenue / realisation grew +17% / +18% / +1% YoY while EBITDA / EBITDA per tonne declined 25% / 36% YoY. The company maintains a healthy trade mix of 78-80% as it targets a sales volume of 32MT in FY23. Capacity utilisation increased to 72% from 61% in 3QFY22 (c. 72% in North and East; c. 61% in the South).

* Cost peaking: Total operating cost came in at INR 4,185 / tonne (+1% YoY; down 4% QoQ) as raw material cost declined to INR 352 / tonne (down 40% QoQ; down 29%) while power and fuel cost and freight cost remained elevated at INR 1,622 / tonne (+95% YoY; down 1% QoQ) and INR 1,174 / tome (+1% YoY; +2% QoQ) respectively. Weak realisation (INR 5,067 / tonne; down 7% YoY; flat QoQ) led to EBITDA / tonne coming in at INR 882 / tonne (down 30%; +26% QoQ on a low base). Alternative raw material consumption was 27% in 3QFY23 (flat YoY) and SRCM continues to focus on increased use of different waste materials including fly ash, sludge, etc. Fossil fuel substitution was 3.91% (3.38% in 3QFY22) as the company further stepped up its efforts to improve thermal substitution.

* Envisions 80MTPA capacity by 2030: SRCM currently has 46.4MTPA of grinding capacity and has three projects under implementation, adding c.10MTPA: i) clinker grinding unit in Eastern region (West Bengal – 3MTPA; to be commissioned by 1QFY24); ii) integrated cement unit in the northern region (Rajasthan – 3.5MTPA; 3QFY24); and iii) integrated cement in the southern region (Andhra Pradesh – 3MTPA; 2QFY25). SRCM has a very strong balance sheet (gross debt – INR 83bn; cash – INR 57bn) and targets to reach 80MTPA by 2030 with plans to grow organically.

* Maintain BUY with a Sep’23 TP of 24,660: We maintain a ‘BUY’ rating on SRCM and ascribe a 16x 1yr fwd EV / EBITDA to arrive at a Sep’23 TP of INR 24,660 with a possible upside risk with respect to acquisitions.

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