MOSL: SHREE CEMENT (Neutral)-Gaining from strong exposure to north
SHREE CEMENT: Gaining from strong exposure to north
(SRCM IN, Mkt Cap USD12.3b, CMP INR24413, TP INR22810, 7% Downside, Neutral)
Margin outlook remains strong on better prices, lower costs
- Shree Cement's (SCRM) result reflects the benefit of improved pricing in north as EBITDA/t was strong as expected. Costs are also coming down.
- We maintain our FY20/21 EPS estimate and Neutral rating. While the margin outlook appears strong given the recent price hikes, we believe valuations (18x FY21E EV/EBITDA) already capture the expected gains.
Marginal miss due to higher freight cost
- Volume increased 5.3% YoY to 6.25mt in 3QFY20. Realizations were up ~4.6% YoY (-3% QoQ) at INR4,512/t (in-line).
- While cement revenue grew 10% YoY to INR28.2b, power revenue fell 86% YoY to INR308m, leading to in-line overall revenue of INR28.5b (+2% YoY).
- Total cost/t of INR3,147 (-3% YoY/ -2% QoQ) came in higher than our estimate of INR3,096 due to a rise in freight cost to INR1,031/t (+2% QoQ).
- Cement EBITDA/t was thus 4% below our estimate at INR1,365 (+28% YoY).
- Power business reported EBITDA loss of INR30m (v/s profit of INR576m in 3QFY19) due to lower units sold at 68m (-85% YoY, -81% QoQ).
- EBITDA thus grew 23% YoY to INR8.5b (our estimate: INR8.9b), with the margin at 29.8% (+5pp YoY).
- Tax rate stood at 24% for 3QFY20 v/s 19% in the year-ago period.
- PAT was up 3% YoY at INR3.1b (our estimate: INR3.5b).
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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