Shree Cement's Q4FY18 results (Outperformer) - Strong operational performance
Q4FY18 result highlights
- Adj. PAT at Rs4bn (+31% yoy): led by sustained volumes and higher realizations.
- Volumes grew by 8.7% yoy to 6.4mt: led by strong growth in East (low base). Sand availability improved in Bihar leading to pick up in construction activity, supporting demand in the region.
- Realizations at Rs4157/t (+7% yoy, +Rs26/t qoq): led by higher prices in North as well as East on yoy basis. The qoq rise in realizations was led by higher sales in East were prices were relatively robust.
- EBITDA/t at Rs956 (+5% yoy, -Rs49/t qoq): Costs increased by 8% yoy largely due to higher P&F costs (+31% yoy, higher petcoke prices) and freight costs (+16% yoy, higher diesel prices, clampdown on overloading, change in commercial terms to FOR vs ex-factory sales), which offset benefits of positive operating leverage. On a qoq basis, cost/t +2.4% led by higher freight costs. Hence, cement EBITDA grew 14.4% yoy to Rs6.2bn.
- Merchant power EBITDA -48% yoy to Rs135mn: due to lower volumes (-21% yoy to 345mn units on weak demand) and higher fuel costs. Consequently, overall EBITDA grew 11.5% yoy to Rs6.3bn.
- Rise in costs impact FY18 profitability: FY18 Cement EBITDA +2.6% yoy to Rs242bn on volume growth (+9.5%yoy to 22.5mt), while 7% increases in realisations was offset by higher costs resulting in drop in EBITDA/t (-6.3% yoy to Rs1073). Power EBITDA fell 91% yoy to Rs142mn (22% yoy drop in volumes, higher costs). Overall EBITDA fell 3.2% yoy to Rs24.3b. Adj PAT flat yoy at Rs13.44bn (lower depn).
Key positives: Sustained volume growth
Key negatives: Continued weakness in power biz, higher freight costs
Impact on financials: FY19/FY20 EPS maintained at Rs435/539.
Valuation and view
Efficient capital allocation (sharply lower capex on per ton basis relative to industry), cost efficiencies and capacity additions (likely to reach ~42mtpa by FY20 from 27.2mtpa at FY17 end) is likely to drive sustained growth for SRCL (18% earnings CAGR over FY18-20E). SRCL trades at 15.8x FY20E EV/EBITDA and US$200/t (FY20E). We expect premium valuations to sustain given superior return ratios, strong earnings growth momentum, continued free cash flow generation and capacity expansions (driving mkt share gains). Outperformer.
Shree Cements is engaged in the manufacture of cement. Co.'s brands include Shree Ultra, Bangur Cement, and Rockstrong Cement. Shree Ultra is Co.'s flagship brand. This brand has two variants, Shree Ultra OPC and Shree Ultra Jung Rodhak Cement. Shree Ultra Jung Rodhak Cement has unique rust prevention properties. Bangur Cement, launched as a premium brand in the market, is designed to meet the high end market segment. Rockstrong Cement is the youngest brand. This brand has high performance and ability to withstand exceptionally harsh environment conditions.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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