Neutral Shree Cement Ltd For Target Rs.25,060 by Motilal Oswal Financial Services Ltd
Earnings above our estimate; demand outlook positive Targets 80mtpa cement capacity in the near term
* Shree Cement (SRCM)’s 2QFY27 EBITDA was above our estimate, driven by higher-than-estimated volume growth/OPM. Standalone revenue grew ~19% YoY to INR51.1b, driven by robust volume growth (up ~18% YoY; 8% beat). EBITDA declined ~3% YoY to INR8.5b (~18% beat). EBITDA/t dipped ~18% YoY to INR912 (vs. est. INR837). OPM contracted 3.7pp YoY to ~17% (est. ~16%). PAT declined ~30% YoY to INR2.1b (~17% beat).
* Management maintained a constructive demand outlook, reiterating its FY27 volume guidance of 40mt-41mt (implying ~10-13% YoY growth). Fuel costs are expected to remain elevated in 3QFY27, although overall cost is likely to remain broadly stable. Its performance is anticipated to improve in 2HFY27, led by demand recovery, sequential price improvement, and cost optimization. Management has indicated that it aims to achieve its 80mtpa capacity target in the short term. It commissioned a 3.0mtpa cement mill in the UAE in Sep’26, taking its total cement capacity there to 7.0mtpa.
* We raise our EBITDA estimates by ~6%/5% for FY27/FY28 to factor in its 2Q outperformance and margin improvement. This further leads to an EPS expansion of ~9%/7% for FY27E/FY28E. We reiterate our Neutral rating with a TP of INR25,060 (based on 16x FY28E EV/EBITDA).
Volume jumps ~18% YoY; blended realization/t up ~1% YoY
* Standalone revenue/EBITDA/PAT stood at INR51.1b/INR8.5b/INR2.1b (+19%/-3%/-30% YoY and +12%/+18%/+17% vs. our estimates) in 2QFY27. Sales volumes increased ~18% YoY to 9.3mt. OPM contracted 3.7pp to ~17%. Cement realization was up ~1% YoY (down ~1% QoQ) to INR4,870/t.
* Opex/t rose ~6% YoY/5% QoQ, led by ~16%/4% increase in variable costs/ other expenses. Freight costs/staff costs per ton declined ~8%/6% YoY. EBITDA/t dipped ~18% YoY to INR912. Depreciation/interest costs grew ~7%/12% YoY. Other income decreased ~33% YoY for the quarter.
* For 1HFY27, revenue/EBITDA/PAT stood at INR107.3b/INR19.2b/INR6.4b (+16%/-9%/-29% YoY). OPM contracted 4.8pp YoY to ~18%. EBITDA/t declined 22% YoY to INR972. OCF stood at INR6.3b vs. INR7.5b in 1HFY26 and capex stood at INR6.1b vs. INR8.3b in 1HFY26. Net cash inflow stood at INR193m vs. net cash outflow of INR752m in 1HFY26
Key highlights from the management commentary
* Fuel costs were INR2.09/Kcal vs. INR1.66/INR1.95 in 2QFY26/1QFY27. Management expects the fuel cost to rise to INR2.15-2.2/kcal in 3QFY27.
* Cement prices in Oct’26 are better than in Sep’26; however, prices are purely a function of demand and supply. Management expects realizations to improve through pricing initiatives and a higher premium mix.
* The ready-mix concrete business sustained its strong growth momentum in 2QFY27, with the commercial network expanding to 28 plants and the total network reaching 35 plants, including captive units. In 2QFY27, volumes grew 153% YoY to 2.73 lakh m³, while revenue grew 182% YoY to INR1.29b.
Valuation and View
* SRCM’s 2QFY27 operating performance was above our estimate, driven by robust volume growth, which improved capacity utilization to ~56% from ~52% in 2QFY26. However, elevated fuel prices and subdued pricing actions weighed on margins. While cement prices have shown signs of sequential improvement, sustainability remains a key monitorable given continued capacity additions in the industry. The company is taking internal cost-control measures, including reducing lead distances and increasing the share of alternative fuels and green power, to partly offset the impact of elevated fuel prices.
* We estimate a CAGR of 13%/6%/7% in revenue/EBITDA/PAT over FY26-28. We estimate a volume CAGR of ~11% over FY26-28E vs. muted volume CAGR over FY24-26. We estimate EBITDA/t of INR1,018/INR1,074 in FY27/ FY28 vs. INR1,174 in FY26. SRCM trades fairly at 17x/15x FY27E/FY28E EV/EBITDA. We reiterate our Neutral rating with a TP of INR25,060 (based on 16x FY28E EV/EBITDA).
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