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Consistent performance continues

Shree Cement’s (SRCM) Q1FY22 standalone EBITDA of Rs10.1bn (up 45% YoY) was broadly in line with our and consensus estimates. Blended realisation surprised with 4.6% QoQ growth; although the same was offset with higher 5.4% QoQ cost increases. Accordingly, blended EBITDA/te was up 4% YoY and 3% QoQ to Rs1,481/te.

This would be ninth consecutive quarter whereby SRCM has been consistently posting average EBITDA/te of ~Rs1,500/te; although peers have been able to improve profitability over the same period. We marginally cut our FY22-23E consolidated EBITDA by 1-2%; although raise our FY22-23E PAT by 3-10% owing to lower depreciation. We increase our target price to Rs32,600/sh (earlier: Rs31,200/sh) based on 17x Jun’23E EV/E on quarterly rollover. Maintain BUY. Key risks: lower demand / pricing, and regulatory intervention.

* Standalone revenues up 48% YoY to Rs34.5bn (I-Sec: Rs32.9bn). Cement plus clinker volumes increased 39% YoY on a low base and declined 17% QoQ to 6.84mnte. Blended realisation was up 4.6% QoQ and 6.6% YoY to Rs5,041/te led by sharp price increases in East and South region.

* Standalone EBITDA rose 45% YoY to Rs10.1bn, broadly in keeping with our estimates. Blended EBITDA/te increased 4% YoY / 2.9% QoQ to Rs1,481/te (I-Sec: Rs1,509/te). Total cost/te was up 7% YoY / 5% QoQ owing to sharp increases in various input prices. Freight cost/te rose 5% QoQ and 7% YoY on higher diesel prices. Raw material and power & fuel cost/te grew 5% QoQ and 10% YoY on higher fuel prices. Other expenses/te increased sharply by 7% QoQ and 14% YoY to Rs802/te owing to increase in packing costs and higher provisioning for various expenses.

* Standalone PAT 78% YoY higher at Rs6.6bn (I-Sec: Rs6.2bn). Depreciation declined sharply by 22% QoQ and 14% YoY to Rs2.3bn while other income increased 17% QoQ and 12% YoY, to Rs1.4bn.

* Consolidated revenues up 46% YoY to Rs36.3bn and EBITDA up 49% YoY to Rs10.2bn. Interest cost declined 24% YoY to Rs545mn and depreciation shrunk 17% QoQ and 9% YoY to Rs2.7bn. PAT jumped 91% YoY to Rs6.3bn. Implied revenue of the UAE-based subsidiary Union Cement was down 32% QoQ (up 20% YoY) to Rs1.85bn; while EBITDA stood at Rs95mn vs EBITDA loss of Rs127mn in Q1FY21 and EBITDA of Rs606mn in Q4FY21.

* Company is setting up 12,000tpd brownfield clinkerisation unit in Chhattisgarh, which is likely to be completed in H1FY23. Clinker grinding unit of 3mtpa in Pune is expected to commence commercial production by Sep’21. SRCM is exploring both organic and inorganic expansion to increase capacity.

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