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Sustaining margin leadership; upgrade to ADD

Shree Cement’s Q4FY24 EBITDA was a strong beat on our/consensus estimates by 14-22%, mainly led by better-than-expected blended realizations and lower cost. EBITDA grew 49% YoY/8% QoQ to Rs13.3bn (Emkay est: Rs11bn) with EBITDA/t improving marginally QoQ to Rs1,393 (industry leading). Shree is one of the few companies (along with Birla Corp and Orient Cement) with a rising EBITDA/t vs industry profitability, which declined by an average of Rs135, sequentially. Volumes grew 7% YoY to 9.5mt. Management has reiterated its target to achieve grey cement capacity of 75mt/80mt by FY27/28E, respectively. Moreover, in recent times, the company has significantly enhanced its focus on brand building in a bid to improve price positioning and share of premium products. Factoring in the low cement prices, we marginally cut our EBITDA estimates (by 1-2%) in FY25-26E. The stock price has declined ~13% over the past three months. Hence, we upgrade the stock to ADD from Reduce with a TP of Rs29,500/share (based on ~17x Mar-26E EV/EBITDA).

Result Summary:

Volumes growth was moderate at 8% YoY to 9.5mt (vs industry growth of 9-10%). Company lost volumes for four days (0.4mt) owing to IT transition (Oracle to SAP) and a branding event. Cement realization declined 6% QoQ to Rs4,721/t on account of weak prices in Q4. Shree witnessed healthy reduction in costs, with total cost/t dropping by Rs165 QoQ to Rs3,960 (Emkay est: Rs4,090). The reduction was mainly driven by lower expenses (others expenses + employees cost declined Rs131/t QoQ). RM+P&F cost fell by Rs36/t QoQ, on account of softening fuel costs. Shree has successfully commissioned 3mt GU in Guntur, AP in Apr-24, taking the overall domestic capacity to 56mt. The work on 18mt capacity expansion projects already announced is running as per schedule, which will increase total capacity to 75mt by FY27E. In FY24, consolidated FCF stood at Rs3bn after working capital blockage of Rs7.2bn and capex of Rs32bn. Despite its aggressive expansion plans, we expect Company to generate a positive FCF going ahead. What we liked: Robust EBITDA growth and other cost reductions.

KTAs from the earnings call:

i) For Q4, volume growth for Shree was around 20% YoY in East, 5% in North, and 9- 10% YoY in South. ii) For power segment, revenue stood at Rs4.4bn and EBITDA margins was ~10%. iii) Company is looking for rail connectivity at all sites in FY28, which will help to reduce logistics cost. Currently, the cost of rail is Rs2.6/ptpk and road is Rs3/ptpk. Targeting rail share of 25% by FY28E from the current 12%. iv) Coal cost increased marginally to Rs1.82/kcal in Q4 vs Rs1.78/Kcal in Q3. Shree has around four months of coal inventory (~1.4mt) at an average cost of Rs1.8/Kcal. v) Share of green power stood at 54% in Q4. In the process of commissioning 34MW WHRS and 154MW of Solar plant by FY26. vi) Lead distance for the quarter stood at 435km (Q3FY24: 457km). vii) Looking to incur capex of Rs120bn by FY27 (Rs40bn p.a.)

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