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Shree Cement Ltd Q4FY24 volumes came at INR9.5mnt, up 7.1% QoQ and 7.9% YoY, leading to INR51,010mn in revenues, up 4.1% QoQ and 6.6% YoY. For the full year FY24 consolidated volume came at INR35.5mnt, up 11.5% YoY. Company reported full year revenue at INR195.8bn, up 16.3% YoY. Shree Cement Ltd had achieved 77% utilization for FY24 vs 70% in FY23. EBITDA/t for the quarter came at INR1,393/t, up 0.5% QoQ and 37.8% YoY. The YoY spike in EBITDA/t was mainly led by lower power and fuel cost. PAT for FY24 stood at INR24,684mn, up 88.9% YoY. EPS for the full year was INR684.2. The company is committed to using 100 percent renewable electricity by 2050.

* Expansion plans on track: Shree Cement Ltd. is actively pursuing an increase in its current capacity to 80mnt by the end of FY28E. The company has earmarked a capex budget of INR120bn to be utilized by the end of FY27E. Of this amount, INR60,000mn will be sourced from existing cash reserves, with the remainder to be accrued internally. For the FY25E, the company plans to spend INR45,000mn. On April 2nd, 2024, the Company inaugurated its Integrated Cement Plant in the Guntur district of Andhra Pradesh, boasting a cement capacity of 3.0mtpa. The ongoing capacity expansion projects of 18mnt are progressing as per schedule, with an expected completion of 9-10mnt expansion in FY25E. The management aims to achieve a capacity expansion of 62mnt by March 2025E, followed by 65mnt by September 2025E, and ultimately targeting 75mnt by March 2027E.

* Focus on cost optimization: In Q4FY24, the total cost/t stood at INR3,960/t, marking a 3.9% decrease on QoQ and a 10.2% decrease on a YoY basis. Power and fuel costs/t amounted to INR1,520/t, showing a 9.3% increase QoQ but a 14.6% decrease YoY, primarily driven by lower petcoke prices. Currently, fuel costs are at INR 1.82/kcal, compared to INR2.53/kcal in the previous quarter. Management intends to further reduce power and fuel costs by enhancing the utilization of alternative fuels. Moreover, the company has boosted its contribution of green power energy to 56%, with plans to raise it to 60% through the addition of new renewable plants. Presently, the company's green power capacity stands at 480MW compared to 386MW in FY23, with plans to add an additional 188MW of green power capacity at various locations. Freight expenses/t for the quarter amounted to INR1,097/t, showing a marginal 0.3% increase QoQ but a 6.1% decrease YoY. The lead distance for the quarter was 435km, compared to 457km in the previous quarter. Furthermore, the company aims to increase the share of rail transportation to 25% in the next 3-4 years from the current 12%, which is expected to significantly reduce freight expenses.

Outlook and Valuation: The management anticipates that cement demand in India will continue to be strong, propelled by various factors such as the government's significant emphasis on infrastructure development, ongoing real estate activities, and optimistic projections for a favourable monsoon season. Management is committed to cost optimization efforts and is actively pursuing strategies to expand its market share. Additionally, Shree Cement aims to enhance the proportion of premium cement in its total sales, targeting a range of 12-15% in the near term. We expect Revenue/EBITDA/PAT to grow at a CAGR of 6.7%/12.4%/9.3% respectively over FY24-FY26E. Our target EV/EBITDA multiple is 18x (unchanged) on FY26E EBITDA, hence we ascribe a target price of INR27,055, downgrading our rating to REDUCE.

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