Accumulate Shree Cement Ltd for Target Rs. 34,394 by Elara Capital
Margin premium hits five-year high vs peer
Shree Cement (SRCM IN) Q4FY25 EBITDA rose ~6% YoY and 49% QoQ to ~INR 14.1bn, in line with our estimates of ~INR 13.8bn. Q4 EBITDA/tonne of INR 1,435 increased by INR 356. Key highlights were: 1) EBITDA/tonne at a 15-quarter high, 2) EBITDA/tonne premium vs UltraTech Cement (UTCEM IN) rising to a five-year high, and 3) improvement in the standalone net working capital cycle by 30 days to 38, primarily led by reduction in inventory days. Key drivers of margin improvement were healthy prices in East as well as North India and continued focus on value over volume. Volume base is likely to turn favorable from Q2FY26, which coupled with capacity ramp-up should help the company to report healthy volume growth. Thus, we remain positive with a higher TP of INR 34,394 based on 18x March 2027E EV/EBITDA. As our TP offers an upside potential of ~12%, we revise to Accumulate from Buy
Capacity to rise by ~22% to ~69mn tonne by Q2FY26: SRCM upgraded its Nawalgarh clinker unit in Rajasthan in Q4FY25, increasing clinker capacity to 4.5mn tonne from 3.8mn tonne. In April, it added two grinding units: 1) 3.0mn tonne at Etah in Uttar Pradesh, and 2) 3.4mn tonne at Baloda Bazar in Chhattisgarh, raising total cement capacity to 62.8mn tonne by endApril from ~56.4mn tonne as on end-FY25. Ongoing projects — 6.0mn-tonne integrated unit at Jaitaran in Rajasthan and 3.0mn tonne at Kodla in Karnataka are expected to be commissioned in Q1FY26 and Q2FY26, respectively. However, out of the two planned cement mills (6.0mn tonne) at Jaitaran, only one will be commissioned initially; the second will follow later.
Reports highest-ever EBITDA/tonne post June 2021: Cement realization rose ~4% QoQ to INR 4,758/tonne, aided by healthy cement prices in its serving markets of East and North India. As per management, Q4FY25 realization grew by ~2% QoQ in South India, ~4% QoQ in North India and ~8% QoQ in East India. Sales volume grew ~3% YoY and 12% QoQ to 9.8mn tonne. Operating cost dropped ~1% YoY but rose ~4% QoQ to INR 3,890/tonne. So, EBITDA/tonne jumped ~3% YoY and ~33% QoQ to INR 1,435, vs our estimates of INR 1,380.
Revise to Accumulate with a higher TP of INR 34,394: We believe the expected commissioning of ongoing expansion projects in H1FY26, and better demand should enable the company to report healthy volume growth. Further, focus on improving premium share, increased green energy use, and other cost-saving initiatives should support margin improvement. Therefore, we raise our EBITDA estimates by ~4% for FY26 and ~3% for FY27. Also, we introduce FY28E. We revise our TP to INR 34,394 from INR 32,740 based on 18x (unchanged) March 2027E EV/EBITDA. As our TP offers an upside potential of ~12%, we revise to Accumulate from Buy. Sub-par demand, weak cement price and a sharp rise in fuel price are key risks to our call.
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SEBI Registration number is INH000000933
