MOSL: SHREE CEMENT (Buy)-Volumes impress, but forex loss impacts profits
Shree Cement: Volumes impress, but forex loss impacts profits
(SRCM IN, Mkt Cap USD8.7b, CMP INR17175, TP INR19804, 15% Upside, Buy)
- Healthy volume growth: SRCM's 1QFY19 volumes including clinker increased ~19% YoY (+8% QoQ) to 6.99mt, led by healthy growth in eastern operations. Realizations declined ~2.6% YoY (-1% QoQ) to INR4,107 (in-line) due to weaker prices in north markets. Revenue increased 19% YoY to INR30.7b (est. of INR30.4b). Cement revenue grew 2% YoY to INR28.6b, while power revenue increased 109% YoY to INR2.0b due to healthy merchant power rates and higher volumes.
- Higher forex loss impacts margins: EBITDA declined 19% YoY to INR5.75b (est. of INR6.77b) due to a forex loss of INR700m in 1QFY19. Overall margin contracted 8.9pp YoY (-3.65pp QoQ) to 18.7% on account of an increase in unitary cost (led by higher freight cost and power & fuel cost due to an increase in petcoke prices) and other expenses due to forex loss. Power EBITDA stood at INR420m, resulting in cement EBITDA/t of INR763 (est. of INR934). Depreciation increased 32% YoY (+31% QoQ) due to commissioning of grinding units in Bihar (2mt) and Rajasthan (3.6mt), and a clinker unit of 2.6mt in east. Tax rate stood at 10% in 1QFY19 v/s 19.5% in the year-ago period, resulting in a 37% YoY decline in PAT to INR2.77b.
- Key highlights: (1) Power volumes increased 58% YoY to 451mn units. 2) Power EBITDA/unit increased 2.4x QoQ to INR0.9/unit, led by better realizations. 3) Other expenses included a forex loss of INR700m.
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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