MOSL: SHREE CEMENT (Buy)-Cost push confines realization improvement
​Shree Cement: Cost push confines realization improvement
(SRCM IN, Mkt Cap USD8.0b, CMP INR19945, TP INR23316, 17% Upside, Buy)
- Volume growth led by ramp-up in east: SRCM's 4QFY17 volumes increased ~11% YoY (+21% QoQ) to 5.9mt, led by capacity ramp-up in east. Realizations rose 2% QoQ (+14% YoY) due to an increase in prices in its focus markets in north in February and March 2017. Realizations for 1QFY18 are also expected to improve QoQ as (1) exit realizations were better than 4QFY17 average and (2) additional price hikes were taken in April in north and east.
- Margin deterioration led by cost push: EBITDA of INR5.1b (-4% YoY) came in higher than our estimate of INR4.34b due to higher-than-estimated profit from the power segment. However, overall margin contracted 3.9pp QoQ (-5.1pp YoY) to 21.5% due to higher-than-expected freight cost and other expenses. Unitary cost rose 18% YoY (+8% QoQ), led by higher power/fuel cost, freight cost and other expenses. Freight cost/t increased 20% QoQ due to 1) higher freight cost for servicing the Bihar market as its unit in that state was shut for ~23 days, 2) impact of 12% QoQ increase in diesel cost, 3) lower proportion of ex-factory sales at 12% v/s 14% in the year-ago period, and 4) higher freight cost for eastern units due to lower availability of rakes.
- FY17 performance: Volumes increased 11% YoY to 20.5mt, led by ramp-up of its units in east. Revenue rose by 16.5% YoY to INR84.2b and EBITDA by 28% YoY to INR23.6b, with the margin at 28.1% (+3.7pp YoY). PAT increased only 5% YoY to INR13.39b due to lower other income of INR5.07b (-29% YoY).
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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