MOSL: SHREE CEMENT (Buy)-Capacity expansion to drive growth-Margins improve on lower costs
Shree Cement: Capacity expansion to drive growth; Margins improve on lower costs
(SRCM IN, Mkt Cap USD10.2b, CMP INR20333, TP INR23400, 15% Upside, Buy)
- Healthy volume growth: 4QFY19 volumes (including clinker) increased ~13.3% YoY to 7.3mt (our est. 7.04mt). Realizations increased ~1.6% YoY to INR4,225, while revenue grew 17% YoY to INR32.8b (our est. INR33.1b). Cement revenue grew 15% YoY to INR30.8b, while Power revenue was up 52% YoY to INR2.0b.
- Easing cost pressures drive margins: Total cost/t declined 2% YoY. Power EBITDA at INR430m, resulted in cement EBITDA/t growing 15% YoY to INR1,103/t). Thus, EBITDA was up 35% at INR8.5b (in-line). Overall, margins were up 3.4pp YoY at 25.8%. Tax rate stood at 20% in 4QFY19 v/s 13% in 4QFY18, thus, reported PAT declined 20% YoY to INR3.2b (our est. INR3.5b).
- Key highlights: (1) Company has announced a cement grinding unit of 3mt at a capex of INR5.2b in Pune; it should get commissioned by Sep'20. (2) 4QFY19 average fuel cost has decreased to INR8,670/t from INR8,900/t in 3QFY19. (3) With focus on healthy realization, the company has seen trade sales at 73% in FY19 v/s 67% in FY18. (4) Cement utilization for SRCM in North India is 76%, while it is 100% for East India. Its plant in the South is operating at a utilization of 30-35%.
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.
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