MOSL: SHREE CEMENT (Buy)-EBITDA beat driven by better realization and lower other expenses
​Shree Cement: EBITDA beat driven by better realization and lower other expenses
(SRCM IN, Mkt Cap USD9.7b, CMP INR18638, TP INR22360, 20% Upside, Buy)
- Volume growth led by ramp-up in east: SRCM’s 1QFY18 volumes increased ~15% YoY (-1% QoQ) to 5.89mt, led by capacity ramp-up in east, with utilization in excess of 90-95%. Realizations rose ~10% QoQ (+6.7% YoY) due to higher cement prices in north and east markets. However, exit realizations were lower than average realization for the quarter. Revenue increased 15% YoY to INR25.36b (est. of INR24.5b). Cement revenue stood at INR24.4b (+22% YoY), with cement EBITDA at INR6.81b (+4% YoY). Power revenue declined 54% YoY to INR958m, with power EBITDA at -INR14m due to weak merchant power rates.
- Lower other expenses and higher realization drive margin improvement: EBITDA of INR6.8b (-7% YoY) came in higher than our estimate of INR6.21b due to lower other expenses and higher realization. Overall margin shrunk 6.4pp YoY to 26.8% (+5.3pp QoQ) due to an increase in YoY unitary costing on higher freight costs (led by an increase in diesel prices and underlying freight rates) and power & fuel costs (led by a rise in petcoke prices).
- Capex and capacity addition plans: The company is likely to incur capex of INR12-13b in FY18 and INR14-15b in FY19 toward capacity addition, including 1) 3.6mt of GU in Rajasthan, 2) 2mt of GU in Bihar, 3) 0.9mt of GU in Bihar (will get commissioned by 2QFY18), 4) 2.8mt of clinker unit in Chhattisgarh and 5) 3mt of integrated unit in Karnataka.
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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