Neutral Shree Cement Ltd For Target Rs.27,000 by Motilal Oswal Financial Services Ltd
Strong volume growth; profitability below our estimates Fuel costs likely to have peaked; reiterates volume and capex guidance
* Shree Cement (SRCM)’s 1QFY27 EBITDA was below our estimate due to higher-than-estimated other expenses. Standalone revenue increased ~14% YoY to INR56.2b, led by strong volume growth (up ~17% YoY). However, EBITDA declined ~13% YoY to INR10.7b (-6% miss). EBITDA/t dipped ~25% YoY to INR1,024 (vs. est. INR1,109). OPM contracted 5.7pp YoY to ~19% (est. ~21%). PAT declined ~29% YoY to INR4.4b (in line).
* Management maintained a constructive demand outlook, reiterating its FY27 volume guidance of ~40mt. Operational performance in 1Q was impacted by temporary supply-chain disruptions arising from the Middle East conflict, which led to a sharp shift in the fuel mix, higher fuel and raw material costs, and lower manufacturing efficiency. However, the company believes that fuel costs peaked in 1QFY27, and with normalizing key raw material supplies, it expects improvement in cost/t sequentially in the coming quarters. SRCM retains its capex guidance of INR15b in FY27, with the capex standing at INR4.6b in 1QFY27.
* We maintain our EBITDA estimates for FY27/FY28E. SRCM trades fairly at 20x/17x FY27E/FY28E EV/EBITDA. We reiterate our Neutral rating with a TP of INR27,000 (based on 17x FY28E EV/EBITDA).
Volume jumps ~17% YoY; cement realization/t up ~1% YoY
* Standalone revenue/EBITDA/PAT stood at INR56.2b/INR10.7b/INR4.4b (+14%/-13%/-29% YoY and +2%/-6%/-4% vs. our estimates) in 1QFY27. Sales volumes grew ~17% YoY to 10.5mt (in line). Standalone cement realization was up ~1% YoY (up ~4% QoQ) to INR4,919/t. Consolidated volumes were 11.5mt in 1QFY27 vs. 10.0mt in 1QFY26. Consolidated operational EBITDA/t was INR1,111 vs. INR1,338 in 1QFY26.
* Opex/t increased ~4% YoY (+2% vs. our estimate), led by variable/freight/ other expenses per ton, which rose ~8%/3%/1% YoY. However, employee expenses/t declined ~3% YoY, which benefited from higher volumes. EBITDA/t declined ~25% YoY to INR1,024. Depreciation/interest costs grew ~6%/25% YoY. Other income remained flat YoY.
* The company's consolidated net cash/investment stood at INR83.5b as of Jun’26 vs. INR77.3b/INR64.0b in 1Q/4QFY26.
Valuation and View
* SRCM's 1QFY27 operating performance was below our estimates, primarily due to higher-than-expected cost/t. The West Asia crisis disrupted the supply of key raw materials, resulting in operational inefficiencies, an adverse fuel mix, and elevated production costs. It believes costs peaked in 1QFY27 and expects sequential improvement from 2QFY27 onward. Further, after two years of subdued growth, it reported robust volume growth in 1QFY27. Going forward, the key monitorables will be an improvement in the cost curve and higher capacity utilization.
* We estimate a CAGR of 10%/9%/11% in revenue/EBITDA/PAT over FY26-28. We estimate a volume CAGR of ~10% over FY26-28E (vs. muted volume CAGR over FY24-26). We estimate EBITDA/t of INR1,071/INR1,156 in FY27/ FY28 vs. INR1,174 in FY26. SRCM trades fairly at 20x/17x FY27E/FY28E EV/EBITDA. We reiterate our Neutral rating with a TP of INR27,000 (based on 17x FY28E EV/EBITDA).
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
