Add Shree Cement Ltd for the Target Rs 27,500 by Emkay Global Financial Services Ltd
Shree Cement (SRCM) reported standalone EBITDA of Rs10.7bn (down ~13%/14% yoy/qoq), ~17% below our estimate, due to lower-than-expected other operating income and higher costs. Volumes grew ~17% yoy, a successive quarter of double-digit growth; blended realization rose ~2.3% qoq despite a lower trade share of 62% (vs 64% qoq). However, the West Asia conflict disrupted contracted petcoke and gypsum (Omani) supply, forcing the use of expensive, higher-ash-content domestic coal, driving fuel cost up to Rs1.95/kcal (vs Rs1.6/kcal qoq). Consequently, unit cost rose ~6% qoq, and EBITDA/t stood at Rs1,025 (Emkay: Rs1,230), while India ops stood at ~Rs1,045/t. Our view: We see the higher cost this quarter as a transient event rather than structural. Given the front-loading of costs in 1Q and easing fuel and packing bag costs, we expect a similar cost structure qoq. Still, factoring in the miss, we cut FY27E EBITDA by ~5% while broadly maintaining FY28E EBITDA. We roll forward to 1QFY29E EBITDA and value SRCM at 17x EV/EBITDA, with an unchanged TP at Rs27,500; maintain ADD
Volumes deliver; fuel-mix disruption causes margin dilution
SRCM delivered volumes (India ops) of 10.5mt, up ~17% yoy (down ~3% qoq), primarily led by the ramp-up of fresh capacities (~13mtpa) commissioned in FY26. During 1QFY26, higher ash absorption from the substituted coal pulled down the clinker factor to 1.50 from 1.58, resulting in lower blended and trade segment cement sales. However, industry-led pricing improvement resulted in ~4% qoq rise in cement realization. Variable costs bore the impact of the West Asia tensions, as unit (RM + power and fuel) costs increased ~7% qoq, as the petcoke share in the fuel mix collapsed to 9% from 54% and coal rose to 74% from 26%. While freight cost/t (flat qoq) did not reflect the impact of higher diesel costs (during May/June), due to lower lead distance (down ~15km qoq), we expect it to inflate (Rs15-20/t) in 2QFY26E. Unit fixed cost was flat yoy but up ~14% qoq (~Rs130/t), likely due to expensive packing bag costs. Consequently, total unit cost was up ~4%/6% qoq/yoy. Overall, EBITDA stood at Rs10.7bn and EBITDA/t at Rs1,024, vs Rs1,373 yoy and Rs1,161 qoq. PAT came in at Rs4.4bn, down ~29% yoy.
Limited capex program could push net cash above Rs150bn by FY29E-end
The management maintained FY27 capex guidance of Rs15bn for India operations, of which Rs4.6bn was spent in 1QFY27. The UAE expansion, which doubles Ras-Al-Khaimah capacity to ~7mtpa by 3QFY27, will be funded solely from the UAE operations. The ~1mtpa Meghalaya plant is slated for 4QFY28 commissioning at Rs18bn capex, with infrastructure built for a further 4-5mtpa (necessary approvals in place). We estimate capex cash outflow of Rs55bn over FY27-29E and see net cash of Rs75bn (as of Mar-26) moving past Rs150bn by FY29-end
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
