MOSL: SHREE CEMENT (Buy)-Another quarter of healthy profitability
Shree Cement: Another quarter of healthy profitability; led by realization growth and easing cost pressures
(SRCM IN, Mkt Cap USD7.8b, CMP INR15912, TP INR20221, 27% Upside, Buy)
- Healthy volume and realization growth: SRCM's 3QFY19 volumes including clinker increased ~11.4% YoY to 5.93mt (in line with est.) led by healthy growth from the eastern region. Realizations increased ~4.4% YoY /1.1% QoQ to INR4,315 (in line with est.), while revenues stood at INR27.8b, +21% YoY (est. INR26.9b). Cement revenue stood at INR25.6b (+16% YoY), while Power revenues stood at INR2.2b (2.15x YoY).
- Easing cost pressures drive margins: INR200m of MTM forex gains were recorded in other expenses. SRCM had a benefit from lower petcoke prices as power and fuel costs reduced by a marginal 1% QoQ. Total cost/t for the company declined 1% QoQ. Power EBITDA was at INR570m resulting in cement EBITDA/t of INR1,067/t (our est. INR1,076/t). As a result, EBITDA stood at INR6.9b (+30% YoY) v/s est. INR6.58b. Overall, margins were at 24.8% (+1.8pp YoY, +1.5pp QoQ). The tax rate stood at 19% in 3QFY19 v/s 22% in 3QFY18. As a result, reported PAT stood at INR3.0b, while adjusted PAT stood at INR2.81b (-4%YoY) v/s est. of INR2.4b.
- Key highlights: (1) The company has commissioned Clinker capacity of 3mt Integrated Cement Plant at Kodla, Karnataka on 25 Dec'18, and (2) capex for FY19 is INR16b while that for FY20 is INR12b.
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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