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Results in-line, capex largely on track

Shree cements (SRCM) reported results in-line with our estimates with EBITDA of Rs8.7bn up 66% YoY. While both revenue and EBITDA were in-line, volumes were tad lower compared to our expectations offset by better realizations. Power segment sales distort the true picture of cement realizations and EBITDA given the volatility in revenue/EBITDA of this segment (the company has discontinued giving power segment data separately). Adjusted for Power EBITDA, actual grey cement EBITDA/mt is Rs1,044/mt and grey cement realizations are at Rs4,843, up 1% QoQ and 2% YoY. SRCM had recently announced a large capex programme of adding 7.3mn mt of clinker and 12mn mt of cement capacity. Additionally, the company has also announced brownfield grinding capacity of 3.5mn mt at Chhattisgarh which will come up by FY26. We believe that company’s grinding capacity addition is much higher than clinker capacity and hence, maximum grinding capacity utilization it can reach is around 85% at full clinker utilization. We have tweaked our numbers to adjust for slightly higher power & fuel costs and as a result our FY24 and FY25 EBITDA estimates are down by 6% and 5% respectively. We have moved our valuation forward to Sep25 and continue to value SRCM at 16x EV/EBITDA to arrive at our revised target price of Rs23,560 (Rs22,911). We maintain our Sell rating on the stock.

2QFY24 result highlights

Shree cement reported in-line set of results for 2QFY24 with Revenue and EBITDA in line with our estimates; volumes came in (-1.8%) below our estimates; realizations (flat QoQ) and 1.9% ahead of our estimates. SRCM reported revenue of Rs45.8bn, up 21.3% YoY driven by 10% YoY growth in volumes (8.2mn mt). Realizations/mt at Rs5,591 were flat QoQ and up 10.3% YoY. Overall operating cost/mt came in at Rs4,530/mt, flat on a QoQ basis and marginally up on a YoY basis. Absolute EBITDA at Rs8.7bn is up 66.3% YoY; in-line with our estimate. EBITDA/mt at Rs1061 as against our expectation of Rs1,046. Adjusted PAT at Rs4.9bn is 8.6% ahead of our estimate on account of lower finance cost and depreciation

Capacity to reach 62mn mt by FY25; 80mn mt target for FY28

The management reiterated its vision of reaching 80mn mt by FY28. Company had earlier outlined capex plan of adding 12mn mt of cement capacity and 7.3mn mt of clinker capacity by FY25 at existing locations of Rajasthan and Karnataka. Total investment required is Rs70bn translating to USD 71/mt. These capacities would also have WHRS of 40-50 MW. Even though capex announcement is for 12mn mt of capacity, we believe that actual cement production from this capex will be limited to 10 mn mt only. Additionally, the company has also announced grinding unit at Chhattisgarh with 3.5mn mt of capacity. SRCM’s clinker capacity in East is 9.1mn mt and with new capex, it will have 21mn mt of capacity in East. We believe that the company will face clinker mismatch in the region if CC ratio fails to improve further.

Valuation and outlook

We have tweaked our assumptions for the company and as a result, our FY24/FY25 EBITDA estimate is lower by 6%/5% respectively. We expect SRCM to deliver 13%/23% CAGR in revenue/EBITDA over FY23-26 respectively. We are building in EBITDA/mt of Rs1,176 by FY25E. We continue to value SRCM based on 16x EV/EBITDA (highest in our coverage universe) to arrive at our revised TP of Rs23,560. Upward revision in TP is on account of moving to Sep25 valuation vs Mar25 earlier. We maintain our Sell rating on the stock.

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