Shree Cement's Q4FY19 results (Outperformer) - Strong operational performance
Q4FY19 result highlights
- Adj. PAT at Rs3.21bn (-20% yoy): as strong operational performance was offset by higher depreciation and tax rate
- Volumes +13.3% yoy to 7.3mt: led by strong growth in East (29% of volumes) led by infra and housing. North (68% of vols) continued to see stable demand momentum.
- Realizations at Rs4225/t (+1.6% yoy, -Rs90/t qoq): led by higher prices in North and shift towards trade segment (73% of vols vs 67% in 4QFY18). Although, drop on a qoq basis was led by lower prices in East.
- Cost efficiencies drive +15% yoy in EBITDA/t: to Rs1103/t (+Rs36/t qoq). Cost/t declined 2.5% yoy to Rs3122 on lower freight (+11% yoy, -Rs37/t qoq; full benefit of axle load & lower diesel prices). However, this was partially offset by higher P&F costs (+10% yoy; -Rs5/t qoq; higher petcoke prices). Hence, cement EBITDA +31% yoy to Rs8.04bn.
- Merchant power EBITDA at Rs430mn, 3.2x yoy: due to higher volumes (+11% yoy to 382mn units) and realizations (+37% yoy to Rs5.3/unit). Overall EBITDA +35% yoy to Rs8.5bn.
- FY19 PAT impacted by capex: Revenues +19% yoy to Rs117.2bn (15% volume; 25.9mt; +1.2% in realisations), while cost pressures led to 6% drop in EBITDA/t to Rs1007. Hence, EBITDA +14.6% yoy to Rs27.9bn. Higher capex & acquisition resulted in higher interest & depreciation driving 21% yoy drop in adj. PAT to Rs10.6bn.
Capacity expansion: 5.5mt GU in East: 2.5mt GU at Jharkhand to be commissioned in 1QFY20; 3mt GU at Odisha by Sept-19. Further, 2mpta GU in Pune in FY21 (Dec-20). Hence, domestic capacity will be 46.4mtpa.
Focus on pricing vs volumes: Shree has seen Rs30-35/bag price hikes in Apr-19. Mgmt highlighted that it would be focusing on enhancing realisations led by price hikes and focus on trade and premium products.
Impact on financials: FY20 EPS upgraded by 16% to Rs511; FY21 at Rs669
Valuation and view
Shree has doubled its capacity over the past 5 years to 37.9mtpa (domestic) at efficient capex (lower capex per ton relative to industry). We expect ramp up in utilisations and cost efficiencies as also sustained capacity adds (46.4mtpa by FY21) to drive an uptick in earnings growth (28% /48% EBITDA / earnings CAGR over FY19-21E). Shree trades at 15x EV/EBITDA and US$209/t (FY21E). We expect premium valuations to sustain given superior return ratios, continued free cash flow generation and capacity expansions (driving mkt share gains and volume growth). 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.
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