Buy Shree Cements Ltd For Target Rs.32,000 - Yes Securities
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Cost Pressure softened the EBITDA, but continued to remain best in Industry
Result Highlights
* Volume improved by 5% sequentially however, due to the higher base and demand slowdown (unseasonal rains, labour & sand shortage) led the volume declined by 8% y/y to 6.6MT (YSEC est. 6.9MT) in 3QFY22.
* While the healthy blended NSR stood at Rs5,370/te (+6% q/q and +16% y/y) aided the reported revenue to Rs35.5bn (in line with YSEC est.) up by +11% q/q and +7% y/y in 3QFY22.
* EBITDA decline by 8% q/q and 24% y/y to Rs8.3bn v/s YSEC est. Rs10.1bn in 3QFY22 because of increase in Opex/te by 13% q/q and 33% y/y to Rs4,122/te v/s YSEC est. of Rs3,702/te in 3QFY22.
* The unitary RM/power/freight cost increase by +77/23/3% q/q and +122/57/1% y/y respectively, resulted in EBITDA/te decline to Rs1,248/te (v/s YSEC est. of Rs1,472/te) by 12% q/q and 18% y/y in 3QFY22.
* Decline in EBITDA resulted in a fall in PAT by 15% q/q and 21% y/y to Rs4.9bn v/s YSEC est. Rs6.2bn in 3QFY22.
Our view
The unseasonal rains and labour/sand shortage during 2Q-3QFY22 had softened the demand. Therefore, we have lowered our volume est. by ~6/3% for FY22/23E respectively, leading the revenue correction by ~9/7% in FY22/23E. However, we believe the volume would grow by ~2/12/10% in FY22/23/24E. The inflating fuel/diesel and RM cost were the major reason for margin erosion for FY22E. Hence, we have reduced our EBIDTA est. by 18/13% for FY22/23E, respectively. We believe EBITDA/te should bottom out at ~Rs1,350/te (previously Rs1,560/te) for FY22E, still it remains best in Industry. Also, we expect SRCM to maintain its cost leadership and optimize its EBITDA to +Rs1400/te in FY23/24E on the back of normalizing cost and sustainable NSR. As SRCM is a net cash entity, it would manage CAPEX of Rs70.5bn over FY22-24E through internal accruals. We expect a free cash flow generation of Rs23.5bn over FY22-24E. At CMP, the stock trades at 23/19/16x of EV/EBITDA on FY22/23/24E. Thus, we retain our BUY recommendation with a TP of Rs32,000 (previously Rs34,000), valuing the stock at 21.2x EV/EBITDA on the FY24E estimate.
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