Q3FY23 Review: Shree Cement: In-line Q3; capacity additions to drive growth

9 Feb 2023 , 11:56 AM

Shree Cement’s (SRCM) Q3 results were in line with estimates. Ebitda fell 14% YoY, but was up 35% QoQ to Rs7.1bn. Volume growth was in line with estimates; however, miss in realization was offset by lower costs (fall in petcoke prices). Ebitda/t was up 26% QoQ to Rs881. Management said that capacity expansions and sustaining cost leadership are amongst its focus areas, and reiterated its capacity target of 80mt by 2030. SRCM announced an interim dividend of Rs45/share.

SRCM reiterated its target to reach 80mt capacity by 2030. On completion of the announced projects, company’s capacity would increase to 56mt by FY25. For the incremental capacity additions, management shared that it has requisite limestone to grow organically through a mix of brownfield and greenfield expansions. SRCM also highlighted its strategy to improve profitability through: i) Setting up plants to improve AFR usage to 15% by FY24 vs 3% seen in FY22. ii) Focus on brand building and increasing share of premium products to 15% (Q3:7%). iii) Increasing rail despatches (Q3: 12%). iv) Increasing green power share (Q3:53%) by adding 45MW of WHRS and 42MW of solar capacity.

Shree has always traded at a premium to peers, given its cost leadership. However, as other players are now catching up, the valuation gap is narrowing. Shree has underperformed the industry in last 1-2 years. At CMP, the stock trades at 19x FY24 EV/Ebitda – analysts’ of IIFL Capital Services see little scope for further re-rating hereon.

Analysts’ of IIFL Capital Services maintain reduce with target price of Rs 22,800.