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MOSL: SHREE CEMENT (Neutral)-EBITDA in-line; lags peers in volume growth

SHREE CEMENT: EBITDA in-line; lags peers in volume growth

(SRCM IN, Mkt Cap USD13.7b, CMP INR28287, TP INR28550, 1% Upside, Neutral)

 

Faster volume growth needed to improve ROE and drive upside

• Shree Cement (SRCM)’s 1QFY22 result was in-line, with EBITDA up 45% YoY – as higher realization was offset by disappointment on cost, leading to weaker EBITDA/t of INR1,482 (v/s our est. of INR1,552/t). Volume growth at 39% YoY, weighed by lower clinker sales, was also weaker v/s peers.
• We broadly maintain our FY22E/FY23E estimates and expect a 13%/13% volume/EBITDA CAGR over FY21–23E. We maintain Neutral as the valuation (18x FY23E EV/EBITDA) prices in earnings growth. 

Cost disappointment offset by higher realization

• 1QFY22 rev / EBITDA / adj. PAT was up 48%/45%/78% YoY to INR34.5b/10.1b/6.6b (+1%/-4%/+7% v/s our estimate).
• Cement volumes grew 41% YoY to 6.79mt, while lower clinker sales (-62% YoY) led to overall volume growth of 39% YoY to 6.84mt (in-line). SRCM lags behind peers in terms of volume growth, with UltraTech/Ambuja/ACC delivering 47%/53%/44%.
• Blended realization was up 7% YoY (and 5% QoQ) to INR5,043/t (v/s our est. of INR4,985/t). On the other hand, EBITDA/t missed our est. by 5% and came in at INR1,482/t (+4% YoY / +3% QoQ) on the back of higher-than-expected cost of INR3,561/t (+8%YoY / +6%QoQ).
• Depreciation fell 14% YoY to INR2.3b (on lower capitalization in the past 18M), driving 78% YoY growth in PAT to INR6.6b (v/s our est. of INR6.2b).