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In-line result; Good volume uptick and muted cost helps recover EBITDA/te

Result Synopsis

Shree Cement (SRCM) reported in-line revenue growth of +15% y/y on account of robust volume growth of +22% y/y, despite NSR decline of 6% y/y. EBITDA/PAT came at in Rs7.08& 2.77bn declined by 14% y/y and 44% y/y. SRCM reported EBITDA/te of Rs881 (v/s YSECe Rs890) declined by 29% y/y on account of muted cost/te increased marginally by +2% y/y. While the cost/te declined by 4% q/q mainly due to RM/power & other cost/te moderation by 29% / 2% & 4% q/q, respectively. SRCM stands out among its peers on operating efficiencies, owing to its high share of green energy sources (WHRS/renewable) and alternate raw material. However, the efficiency gap between SRCM and peers is narrowing as companies focus on cost efficiency measures by increasing green power share & optimizing lead distance. Currently, as on Q3FY23 ~52% of total power is fulfilled through green power and to sustain it with incremental capacity, SRCM plans to increase its solar/WHRS capacity to 106/287MW at various locations. Also, as a part of 80MTPA capacity plan by FY30E, SRCM announced~9.5MTPA expansion in East/North/South till date, that will take the total capacity to 55.9MTPA (excl. 4MTPA of overseas capacity) by FY25E. The 9.5MTPA expansion includes 3MTPA of GU in West Bengal, while planned 3.5MTPA and 3MTPA of greenfield capacities in Rajasthan and Andhra Pradesh. The overall expansion will outlay Rs67.5bn over FY23-25E and will be funded through internal accruals. At CMP, stock trades at 19/16x EV/EBITDA on FY24/25E. Therefore, by valuing the stock at 18x EV/EBITDA on FY25E arrived at a TP of Rs25,177 with a NEUTRAL rating.

Result Highlights

* Volume came +5% higher YSECe to 8.03MT (incl. 0.3MT of clinker sales) registered a growth of 22% y/y and 8% q/q. Due to higher clinker & non-trade sales, NSR declined by 6% y/y and flat q/q (5% below YSECe) resulted in revenue of Rs40.7bn (v/s Rs41bn YSECe) up by +15% y/y and +8% q/q

* Total cost/te came 6% below YSECe, increased by +2% y/y but declined by 4% q/q due to RM/power & other cost/te moderated by 29% / 2% & 4% q/q, respectively,

* Reported EBITDA of Rs7.08bn (+4% above YSECe) declined by 14% y/y but improved sequentially by +36% with EBITDA/te of Rs881 (v/s YSECe of Rs890) de-grew by 29% y/y but recovered by 26% q/q.

* Higher depreciation & finance cost resulted in reported PAT of Rs2.77bn (4% below YSECe) declined by 44% y/y but grew by 46% sequentially.

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