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Strong performance; focusing on cost optimization Plans to increase grinding capacity to 65.8mtpa by Mar’25

* SRCM’s earnings beat our estimates in 4QFY24, aided by lower costs and higher power revenues. EBITDA grew 49% YoY to INR13.3b (est. INR11.5b) and EBITDA/t stood at INR1,393 (est. INR1,218). OPM surged 7.4pp YoY to 26% (est. 23%). PAT grew 69% YoY to INR6.6b (est. INR5.7b).

* The management notes that cost reduction is the focus area and that it will continue to invest in logistics optimization (rail connectivity at all plants) and increasing the share of green energy, alternative fuel & raw material. SRCM targets to increase its grinding capacity by ~9-10mtpa to 65.8mtpa by Mar’25 and is on track to achieve capacity of 80mtpa by FY28.

* We largely maintain our earnings estimates for FY25/FY26. The stock is currently trading at 17x/16x FY25E/FY26E EV/EBITDA. We maintain Neutral rating with a TP of INR28,000 (17x FY26E EV/EBITDA).

Capacity utilization at 79% in 4Q; cement realization down 3% YoY

* Standalone revenue/EBITDA/PAT stood at INR51.0b/INR13.3b/INR6.6b (up 7%/49%/69% YoY and up 3%/16%/16% vs. our estimate) in 4QFY24. Sales volumes grew 8% YoY to 9.53mt. Cement realization declined ~3% YoY (~6% QoQ) to INR4,721/t.

* Opex/t declined 10% YoY and 4% QoQ (~3% below our estimate) in 4QFY24. Variable/freight costs per ton dipped 16%/6% YoY. OPM surged 7.4pp YoY and EBITDA/t grew 38% YoY. Depreciation rose 42% YoY/81% QoQ due to the commissioning of a new plant.

* In FY24, revenue increased 16% YoY, mainly led by volume growth of ~12%. Cement realization was flat YoY. EBITDA grew 48% YoY to INR43.6b and OPM surged 4.8pp YoY to 22%. EBITDA/t was up 33% YoY to INR1,228. PAT increased 110% YoY to INR24.7b. OCF increased 22% YoY to INR33b, led by improvement in profits. Capex stood at INR27.6b vs. INR28.1b in FY23. SRCM generated FCF of INR5.5b in FY24 vs. cash outflow of INR1b in FY23.

Highlights from the management commentary

* Cement demand is expected to improve in 2HFY25, with a pickup in govt projects. Cement prices are stable or weak in the company’s core markets. SRCM believes prices will improve as demand picks up.

* Fuel consumption cost/kcal stood at INR1.82 vs. INR1.76 in 3QFY24. It is carrying fuel inventory of four months at average cost of INR1.8/Kcal.

* SRCM aims to increase grinding capacity to 65.8mtpa by Mar’25 from 56.4mtpa currently. Capex will be INR40b annually for the next three years

Valuation and view

* In our recent report we highlighted SRCM’s expansion plans and its focus on improving brand equity. We estimate a CAGR of 9%/11% in revenue/EBITDA over FY24-26. Net cash is estimated to fall to INR50b in FY26 from INR65.5b in FY24 as a majority of expansion will be funded through internal accruals.

* The stock trades fairly at 17x/16x FY25E/FY26E EV/EBITDA. We maintain our Neutral rating and value the stock at 17x FY26E EV/EBITDA to arrive at our TP of INR28,000.

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