MOSL: SHREE CEMENT (Neutral)-Better realization drives earnings; equity raise on cards
SHREE CEMENT: Better realization drives earnings; equity raise on cards
(SRCM IN, Mkt Cap USD9.1b, CMP INR18661, TP INR21000, 13% Upside, Neutral)
- Muted volume growth, strong realization: Volumes grew by a muted ~1.5% YoY to 5.72mt. Realization was up ~9% YoY (-1% QoQ) to INR4,654/t (our estimate: INR4,533/t). While cement revenue grew 11% YoY to INR26b (in-line), power revenue was down 22% YoY to INR1.4b (26% miss). As a result, total revenue of INR28b (+8% YoY) came in line with our estimate.
- Cost savings also supported EBITDA growth: Total cost/t of INR3,201/t (-2% YoY/QoQ) was below our estimate of INR3,277/t due to lower freight cost (down 8% QoQ to INR1,013/t). Cement EBITDA/t thus came in 16% above our estimate at INR1,453/t (+46% YoY) - and the highest in the last 10 years. Power EBITDA, however, was weaker than expected at INR130m (-68% YoY, -54% QoQ) due to lower realized tariff. Total EBITDA thus grew 40% YoY to INR8.4b (our estimate: INR7.5b), with the margin at 30% (+7pp YoY). Tax rate stood at 23% for the quarter. Adj. PAT was up 36% YoY to INR3.1b (our estimate: INR2.5b). The SRCM board has also approved an equity raise of up to INR30b (5% dilution at CMP).
- 1HFY20 performance: Performance was strong with revenue/EBITDA/PAT up 3%/40%/33% YoY to INR58b/INR17.5b/INR6.7b. We expect revenue/EBITDA/PAT to increase 11%/31%/40% YoY in 2HFY20.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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