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Regaining volume momentum will be the key

SRCM reported weaker than expected std operating performance in Q2FY26 on muted volume growth which grew ~4% YoY to 7.9mt. Blended NSR declined 1.5% QoQ due to weakness in cement prices in the East and South. Elevated raw material costs and weak operating leverage led to higher other expenses. Consequently, EBITDA/t stood at Rs1,108 (PLe Rs1,206). Mgmt. indicated some price erosion during the festive period, which would weigh on Q3 realizations, though improving demand supported by GST rationalization and seasonally stronger activities is expected to partly offset the impact. With the commissioning of a 3.65mt clinker unit at Jaitaran and near-completion of the 3mt integrated plant at Kodla, SRCM remains on track to reach ~68mt by FY26 and ~80mt by FY28E depending upon demand and utilization scenarios.

Management reiterated its value-over-volume strategy, aiming for profitable growth even as capacity expands. However, to outperform the industry volume growth, SRCM may need to recalibrate its approach by driving volumes and capitalizing on the current pricing stickiness. Over last few quarters, SRCM has lost market share to its peers which remains a cause of concern. Although it has grown in line with industry in Q2, regaining volume momentum amid rising competitive intensity will be the key for SRCM to outperform. We cut our FY27/28E EBITDA estimates by ~2% each on lower volume assumptions. The stock is trading at EV of 16.4x/14x FY27/FY28E EBITDA. Maintain ‘Accumulate’ with revised TP of Rs31,769 (earlier Rs32,410) valuing at 17x EV of Sep’27E EBITDA.

* Revenue grew on better YoY prices: Std. revenue increased 15.5% YoY to Rs43bn (-13% QoQ; PLe Rs43.24bn) on higher YoY cement prices. Cement volumes grew 3.9% YoY to 7.9mt (-11.7% QoQ; PLe 7.98mt). Blended realization declined 1.5% QoQ to Rs5,447/t (+11% YoY; PLe Rs 5,418/t) due to softness in cement prices in East and South during Q2FY26. Blended EBITDA/t works out at Rs1,108 (PLe Rs1,206/t) adjusting for Rs237mn one-off expenses on certain power transmission assets transfer to Govt Transmission Corp.

* EBITDA impacted by higher RM costs & lower operating leverage: EBITDA grew 48% YoY to Rs8.75bn (-29% QoQ; PLe Rs9.6bn) on higher RM costs and lower operating leverage on low volumes in monsoon quarter. P&F costs/t remained flat YoY to Rs1,316 on rising pet coke prices negated by higher share of RE power. Freight cost/t increased 1.7% YoY to Rs1,193. RM costs/t increased to Rs683 due to reclassification of royalty & cess on limestone from other expenses to RM. Other expenses/t grew 7.3% YoY to Rs822/t on lower volumes. Reported PAT grew 3x YoY to Rs2.8bn (-55% QoQ, PLe Rs3.9bn) on lower base and lower depreciation expense.

* Improving subsidiaries’ operating performance: UAE operations reported revenue of AED231.8mn, up 50% YoY. EBITDA rose sharply by 158% YoY to AED 52.5mn (from AED20.3mn), driven by higher volumes, which increased 34% YoY to 1.32mt from 0.99mt.

Conference Call Highlights Q2FY26:

* Compared to the Q2FY26 average, some slippage is seen in prices across the country due to festival-related disruptions, which have also resulted in a labour shortage.

* According to management, cement demand grew by 3–5% in Q2FY26.

* Volume guidance for FY26 is ~37–38 mt.

* Other expenses increased due to higher repair and maintenance costs during the quarter.

* RE share for the quarter declined to ~60% due to the monsoon. (63.15% in H1FY26 and 65.65% in Q1FY26).

* Railway share was 11% as of Q2FY26 and is expected to reach 20% going forward, resulting in cost saving of Rs 100/t.

* AFR level currently stands at 2.3%, up from 1.5% in Q2FY25, and is expected to increase further.

* Mgmt. expects to maintain the premium share level at 20–21% in the coming quarters as well.

* Depreciation for the year is expected to be Rs 24.5bn.

UAE operations:

* UAE demand has been robust over the past year, and SRCM is well-positioned to serve all parts of the country.

* SRCM has decided to set up a new 3mt cement mill, which will be supported by excess available clinker. Debottlenecking of the kiln is expected to result in additional clinker production of 0.5 mt.

* SRCM is expected to spend AED110mn on this expansion, which will be financed through excess available cash at UAE.

* Volume: 1.32mt in Q2FY26 (0.99mt in Q2FY25 and 1.01mt in Q1FY26).

Capex:

* SRCM commissioned a 3.65mtpa clinker line at its Jaitaran, Rajasthan plant. The 3mtpa cement mill at this site is expected to be commissioned shortly. Work on the 3mtpa integrated project at Kodla, Karnataka is in the final stage of completion.

* SRCM continues to pursue opportunities to achieve its target of 80mtpa cement capacity, which might spill over to FY29 depending on industry demand and utilisation scenarios.

* SRCM’s railway siding projects at Kodla and Etah are on track, with land acquisitions completed and project work underway.

* The number of RMC plants is expected to grow to 40 by the end of FY26 (cut from targeted 50 earlier).

* Entered the East India market by setting up an RMC plant in Raipur, Chhattisgarh. Also commissioned India’s first RMC solar plant at its Jaipur facility, which now runs primarily on clean, renewable solar energy.

* With the commissioning of a 20MWp solar plant at Chitrakoot (UP) under its subsidiary, Shree Cement East Pvt. Ltd., the group’s total green power capacity in India now stands at 612.5MW.

* Capex for FY26 and FY27 is expected to be ~Rs30bn each.

Others:

* Trade Share: 70% in Q2FY26 vs 71% in Q1FY26.

* Blended Share: 68% in Q2FY26 vs 70% in Q1FY26.

* Lead Distance: 441KM in Q2FY26 vs 451KM in Q1FY26.

* Kcal: 1.66/kcal in Q2FY26 and 1.59/kcal in Q1FY26. It should be around similar level based on current inventory levels.

* Fuel mix: 66% pet coke and balance are coal and others.

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