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Better cost savings drive higher-than-estimated EBITDA/t

Capacity utilization stands at ~58% for 3QFY25 vs. 68% for 3QFY24

* Shree Cement (SRCM)’s 3QFY25 EBITDA declined ~23% YoY to INR9.5b (~5% above our estimates, led by better cost control). EBITDA/t declined 22% YoY to INR1,079 (+8% vs. our estimate). OPM contracted 2.8pp YoY to ~22% (est. ~20%). PAT declined ~69% YoY to INR2.3b (in line).

* Management indicated that cement demand is expected to improve, led by anticipated growth in rural consumption, sustained healthy demand for urban housing, and an expected increase in government spending on infrastructure projects. The company’s 15.4mtpa cement capacity expansion projects are nearing completion, with all projects likely to be commissioned in 1QFY26. Its green power capacity has been increased to 522MW vs. 480MW at the beginning of FY25.

* We have largely maintained our EBITDA estimates for FY25-27. However, our EPS estimates for FY26/27 have been reduced by ~6-8% due to higher depreciation from new capacities, which are likely to be commissioned in 1QFY26. The stock trades fairly at 21x/18x FY26E/FY27E EV/EBITDA. Reiterate Neutral rating with a TP of INR26,640.

Volumes decline 1% YoY; opex/t down 9% YoY

* Standalone revenue/EBITDA/PAT stood at INR42.4b/INR9.5b/INR2.3b (down 14%/23%/69% YoY and down 8%/up 5%/down 3% vs. our estimates) in 3QFY25. Sales volumes declined 1% YoY to 8.77mt. Blended realization declined 12% YoY (-2% QoQ) to INR4,830/t (5% below our estimate), while cement realization improved 3% QoQ to INR4,580/t.

* Opex/t declined 9% YoY (8% below our estimate), led by a 12%/21% YoY decline in variable cost/other expenses, while freight cost per ton was up ~3%. OPM contracted 2.8pp YoY to ~22% and EBITDA/t declined 22% YoY to INR1,079. Depreciation was up 116% YoY, while interest/other income declined 6%/15%.

* In 9MFY25, revenue/EBITDA/PAT stood at INR128b/INR24.6b/INR6.4b (down 11%/19%/65% YoY). Volumes were flat YoY, while blended realization declined ~11% YoY. EBITDA/t declined 19% YoY to INR944. We expect revenue/EBITDA/PAT to decline 2%/9%/39% YoY in 4QFY25. We estimate 6% YoY volume growth in 4QFY25 and EBITDA/t of INR1,204 vs. INR1,392/INR1,079 in 4QFY25/3QFY25.

Highlights from the management commentary

* Avg. fuel cost declined to INR1.55/Kcal vs. INR1.71/kcal in 2QFY25. The fuel consumption cost is currently at the same level. The share of green power in the total electricity consumption stood at 55.1% vs. 54.8% in 2QFY25. Further, improved cost control was driven by a reduction in other expenses.

* The company has started operations of its state-of-the-art, end-to-end solid waste feeding system for municipal solid waste consumption at one of its locations, and this system is being replicated at other plants too. This initiative will help increase the share of alternative fuel and improve the TSR level.

* Capex is pegged at INR38-40b for FY25; it stood at INR32b in 9MFY25. The full-year FY25 depreciation is estimated at INR28b.

Valuation and view

* SRCM’s reported EBITDA/t in 3QFY25 was higher than estimates, led by better cost control (reduction in other expenses and lower fuel consumption cost). The company’s strategy of prioritizing premium, high-value products, coupled with a sharp focus on brand enhancement, strengthening the dealer network, and optimizing the geo-mix, has enabled it to improve sale volumes QoQ. Additionally, its premium product share stood at 15% (+10bp QoQ). SRCM continues to be one of the least cost producers in the industry.

* We believe the company’s capacity expansions at existing locations/markets (North, East, and part of South) will keep capacity utilization at the lower end (~66-69%). We estimate a revenue/EBITDA/PAT CAGR of 11%/18%/16% over FY25-27. The stock trades fairly at 21x/18x FY26E/FY27E EV/EBITDA. Reiterate Neutral rating with a TP of INR26,640.

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