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Shree Cement Ltd. Q2FY24 sales volume came at INR8.2mnt, down 7.9% QoQ but up 9.3% YoY. The company has an aspiration to achieve the installed cement capacity to 80mnt by FY28E. Q2FY24 revenue came at INR45,847 mn, down 8.3% QoQ but up 21.3% YoY. EBITDA/t for the quarter came at INR1,062, up 1.3% QoQ and 52.2% YoY, led by a decline in RM Cost (11.0%) on a sequential basis. Consequently, blended realization during Q2 came at INR5,591, down 0.5% QoQ but up 10.9% YoY. PAT for the quarter came at INR4,913 mn, down 15.5% QoQ but up 159.1% YoY. EPS for Q2FY24 stood at INR136.2. The company’s share of green power in total power consumption increased to 58.6% in Q2FY24 vs 50.8% in Q1FY24, however, management is targeting 62% by Q1FY25. Blended cement for the quarter came at 75% vs 76% in Q2FY23

Expansion plans on track: Shree Cement Ltd. is aggressively aiming to exceed its current capacity to 80 mn tonnes. The company has budgeted INR70,000 mn in capital expenditure by the end of FY25. Because of the high demand for housing, infrastructure, and commercial buildings, the corporation has accelerated its capex plan. Shree Cement is starting a strategic expansion into ready-mix concrete, with a goal of establishing 5 plants by the end of the current fiscal year. The company intends to build a brownfield cement grinding capacity of 3.4 mtpa in the Baloda Bazar district of Chhattisgarh with a capex plan of INR 5,500 mn during the next 18 months. However, the Guntur plant in Andhra Pradesh is projected to be completed in Q4FY24. Furthermore, the Nawalgarh plant is three months behind schedule and is projected to be completed in Q4FY24. Shree cement is also constructing an integrated unit in Pali district, aiming 56 mn tonnes or more, expected to achieve by Q4FY24.

Total cost declined to Rs. 4,530/t for Q2FY24: During Q2FY24, power and fuel costs came in at INR13,695 mn, down 10.1% QoQ but up 11.6% YoY, with power coal tariffs leading the way. Currently, fuel costs INR2.05 per kcal, compared to INR2.80 per kcal in September. However, the company is aiming at 1.90 kcal in Q3FY24. Furthermore, the company intends to increase its renewable energy contribution from 58% to 62% in the next 6-8 months. The company's green power proportion of total power consumption climbed to 58.6% in Q2FY24 from 50.8% in Q1FY24, with management aiming for 62% by Q1FY25. Freight expenses for the quarter was INR9,508 mn, a 10.6% decrease from the previous quarter but an 11.1% increase year on year. Because of the shorter lead distance, freight costs have decreased.

Outlook and Valuation: The company is optimistic about the growth in cement demand due to the Government's ongoing emphasis on infrastructure and housing development. Additionally, higher spending by the central government in preparation for the 2024 general elections is expected to further boost cement demand in the current financial year. These factors collectively contribute to a favorable outlook for the cement industry in the coming year. Management has guided a healthy volume growth of double digits for FY24 and management is focused on pricing and improving the share of premium products. We have introduced FY26E and are expecting Revenue/EBITDA to grow at a CAGR of 23.6%/24.8% respectively over FY23-FY26E. Our target EV/EBITDA multiple is 18x on SeptFY26E EBITDA, hence we ascribe a target price of INR27,490, maintaining our rating to NEUTRAL.

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