MOSL: SHREE CEMENT (Buy)-Higher than expected realization drives profitability
Shree Cement: Higher than expected realization drives profitability
(SRCM IN, Mkt Cap USD8.9b, CMP INR17034, TP INR19731, 16% Upside, Buy)
- Healthy volume growth led by east and clinker sale: SRCM’s 4QFY18 volumes including clinker increased ~8.7% YoY (+21% QoQ) to 6.44mt, led by healthy growth in east markets as also higher clinker sales. Realizations increased ~7.4% YoY (+0.6% QoQ) to INR 4,157 vs est. of INR 4,058 due to better pricing in Eastern markets. Revenue stood at INR28.1b, +15% YoY (est INR25.95b). Cement revenue was at INR26.8b (+17% YoY) while power revenues at INR1,026m (-8%YoY) due to weak merchant power rates.
- Healthy realization and lower other expenses drives margin: EBITDA of INR6.29b (+12% YoY) vs est. of INR6.03b due to better realization and higher clinker sales. Overall margins at 22.4% (-0.75pp YoY, -0.6pp QoQ) declined due to increase in unitary costing led by higher freight, power and fuel cost (due to increase in petcoke prices). Power EBITDA was INR 135m resulting in cement EBITDA/t of INR956/t( vs est. INR931/t). Depreciation increased 11% QoQ due to commissioning of grinding units in Bihar (2mt) and Rajasthan (3.6mt) and clinker unit of 2.6mt in East. Tax rate was at 12.8% in 4QFY18 vs 4.8% in 4QFY17 resulting in PAT of INR3.99b (+31%YoY).
- FY18 performance: Volumes grew 10% YoY led by ramp up of capacity in east. Revenue increased 14.4% YoY to INR98b. EBITDA margin declined 4.5pp YoY to 24.7pp due to cost push. Hence EBITDA declined 3% YoY to INR24.32b for FY18. Tax rate was higher at 24% for FY18 vs 12.5% for FY17. However PAT increased 1% YoY to INR13.5b due to 26% YoY decline in depreciation.
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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