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Utilization improvement & Premiumization lever to strong profitability

Result Synopsis

Shree Cement (SRCM) reported a healthy quarter, where blended EBITDA/te is back to Rs1011/te. Standalone revenue grew by +17% y/y driven by volume & NSR growth of +10/6% y/y (incl. Rs6bn of other operating income). Ongoing Purulia GU expansion (3MTPA) to be commissioned in Q1FY24. Further, Nawalgarh (3.5MTPA) and Guntur AP (3MTPA) will be commissioned by Q3FY24 and H1FY25 respectively. As a result, we expect volume growth of ~11% CAGR over FY24-25E. Total operating cost grew to Rs4409/te (+11% y/y & +5% q/q) as RM & power cost remained elevated due to high-cost inventory in Q4FY23. EBITDA/PAT down by 2% /15% y/y to Rs8.9/5.5bn, also reported tax reversal of Rs330mn in Q4FY23.

SRCM has set an aspirational target of achieving 80MTPA by FY30 wherein CAPEX will be primarily funded through internal accruals. Till date the company has announced ~9.5MTPA expansion in East/North/South that will take the total capacity to 55.9MTPA (excl. 4MTPA of overseas capacity) by FY25E. SRCM enjoys cost leadership with +50% share of green energy consumption and usage of alternate raw materials. However, the efficiency gap between SRCM and peers is narrowing, as the industry focuses on cost reduction initiatives. To maintain leadership on the efficiency front, SRCM is working on brand-building & premiumization, sustaining cost leadership through incremental WHRS/RE, increasing ESG quotient and upgrading systems and processes (CRM/IT & logistics). For FY24/25, we envisage EBITDA/te of >Rs1,200/te on account of easing fuel cost and healthy NSR with higher volumes. At CMP, stock trades at 19/16x EV/EBITDA on FY24/25E. Valuing the standalone entity at 18x EV/EBITDA on FY25E and UAE operation at $100/te; arrived at a TP of Rs25,604 with a NEUTRAL rating

Result Highlights

* Volume came in-line at 8.8MT up by 10% y/y and q/q both in Q4FY23 translates to 31.8MT (+15% y/y) in FY23.

* NSR growth of 6% y/y and 7% q/q guided revenue growth of 17% y/y & q/q each to Rs47.9bn in Q4FY23 (incl. other operating income of Rs6bn).

* Reported total cost of Rs38.9bn (+22% y/y and +16% q/q), whereas total cost/te grew by 11% y/y and 5% q/q driven by elevated RM & power cost/te up by 11% & 33% y/y (+39/10% q/q) in Q4FY23.

* EBITDA came in-line to Rs8.9bn, declined by 2% y/y, but increased by 26% q/q translates to Rs1011/te (YSECe of Rs992; down 11% y/y) in Q4FY23.

* On account of tax reversal of Rs330mn, PAT came 41% above YSECe to Rs5.5mn declined by 15% y/y but up by 97% q/q in Q4FY23

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