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Consistently sustaining industry-leading margins

Shree Cement’s (SRCM) Q2FY22 standalone EBITDA of Rs9.0bn (down 11% YoY) was broadly in line with our estimates but was ahead of consensus. Blended realisation remained flat QoQ (up 8.6% YoY) despite sequential softening of prices in the East market, likely aided by better market mix and higher non-cement revenue. Total cost/te increased 2.6% QoQ (up 16.7% YoY) owing to various input cost escalations resulting in blended EBITDA/te declining by 8% YoY and 4% QoQ to Rs1,422/te (I-Sec: Rs1,405/te). While investor concern around sharp cost increases seems valid, industry has demonstrated strong pricing resilience in the past. Our recent channel checks suggest companies have increased prices by Rs15-20/bag across regions. We broadly maintain our FY22E-FY24E EBITDA and PAT and revise our target price to Rs33,000/sh (earlier: Rs32,600) based on 17x Sep’23E EV/E on quarterly rollover. Maintain BUY. Key risks: lower demand / pricing.

* Standalone revenues up 5% YoY to Rs32bn (I-Sec: Rs31.4bn). Cement plus clinker volumes declined 3.3% YoY and 7.7% QoQ to 6.32mnte owing to heavy monsoon in Bihar and transportation strike in Chhattisgarh, thereby impacting its volumes from the East market. Blended realisation was flat QoQ and up 8.6% YoY to Rs5,076/te led by YoY price increases across its key markets and higher non-cement revenue. Power sales stood at 93.6mn KWH in Q2FY22 vs 0.8mn KWH in Q2FY21 and 74.3mn KWH in Q1FY22.

* Standalone EBITDA fell 11% YoY to Rs9.0bn, broadly in line with our estimates. Blended EBITDA/te decline was restricted to just 7.8% YoY / 4% QoQ to industry leading Rs1,422/te (I-Sec: Rs1,405/te). Total cost/te was up 16.7% YoY / 2.6% QoQ owing to sharp increases in various input prices. Freight cost/te declined 8% QoQ (up 3% YoY) owing to lower lead distance due to lower volumes in the East market. Raw material and power & fuel cost/te grew 7.5% QoQ and 26.5% YoY on higher fuel prices and other input price escalations. Standalone PAT rose 5.6% YoY at Rs5.8bn (I-Sec: Rs5.5bn).

* Market share gains to continue; volume visibility remains high. SRCM is setting up 12,000tpd brownfield clinkerisation unit in Chhattisgarh, which is likely to be completed in H1FY23E. It is also setting up an integrated cement plant in Rajasthan having a clinker capacity of 3.8mnte and cement capacity of upto 3.5mnte which is expected to get commissioned in Q4FY24E. SRCM’s wholly owned subsidiary SCEPL is setting up 3mnte clinker grinding unit in West Bengal which is likely to be commissioned in Q4FY23E.

* Consolidated revenues up 3% YoY to Rs33.7bn and EBITDA down 9.6% YoY to Rs9.2bn. PAT jumped 7% YoY to Rs5.6bn. Implied revenue of the UAEbased subsidiary Union Cement was down 9.6% QoQ and 26.4% YoY to Rs1.67bn, while EBITDA stood at Rs228mn, up 94% YoY and 1.4x QoQ. OCF post WC requirement of Rs6.3bn stood at Rs10.4bn in H1FY22 against Rs19.2bn (aided by WC release of Rs6.2bn) in H1FY21. Company incurred capex of Rs8.7bn during H1FY22.

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