Q3FY24 Review: Shree Cement: Industry-leading performance; trades fairly

2 Feb 2024 , 02:25 PM

Shree Cement (SRCM) Q3FY24 Ebitda grew 74% YoY – ahead of estimates on better profitability. Both on volumes (+11% YoY) and profitability (58% YoY to Rs1388/t) – SCRM reported industry leading growth. In addition to being cost leader, company is now focusing on narrowing the price gap with other leading players to improve its profitability. Further, company remains on track to add 80m MT by FY28. Analysts of IIFL Capital Services upgrade FY24-26 Ebitda by 4-5% to factor strong Q3. They value the stock at 17.5x FY26 Ebitda and ascribe a fair value of ₹30,500 (7% upside). Maintain Reduce. 

Strong all round performance: 

SRCM’s Ebitda grew by 74% YoY and 42% QoQ to Rs12.3bn– 10%/15% above IIFLe/BBGe. The beat in estimates is largely driven by higher than expected decline in power and fuel costs (down 17% QoQ) driving profitability. Volumes were up 11% YoY and 8% QoQ to 8.9m MT – faster than industry. Company reported 12-13% YoY growth in North and South India, while 7-8% YoY growth in East. Ebitda/t was up 58% YoY (up Rs506/t) and 31% QoQ (up Rs327.t) to Rs1388– driven by 3% YoY/QoQ (Rs150/t) increase in realization and balance through cost optimization (fuel prices have come down sharply). 

Focusing on brand to narrow price gap; 80m MT target by FY28 on track: 

Recently, SRCM revamped its corporate brand identity and introduced master brand ‘Bangur’. Company is intensifying its marketing efforts to create a strong brand recall in consumers mind. This is part of company’s strategy to narrow price gap with other leading brands. SRCM has also announced 3m MT brownfield cement capacity at Ras, Rajasthan for Rs6bn (US$24/MT). With this company has given a roadmap to reach 75m MT by FY27 end. Total capex for incremental capacity (19m MT) would be Rs125bn (US$80/MT) over FY25-27. Thus annual capex would increase from Rs33-34bn in FY24 to Rs40-45bn pa through FY27. 

Upgrade estimates:

Analysts of IIFL Capital Services upgrade FY24-26 Ebitda by 4-5% owing to better than expected profitability reported in Q3. On volumes, company expects industry volumes to grow at 8-10% pa and it is likely to grow 2- 3% faster than industry on the back of new capacity additions (12% Cagr over FY23-26). Analysts of IIFL Capital Services estimate SRCM’s Ebitda to grow by 16% pa over FY24- 26 driven by 11% pa volume growth and 4% pa expansion in margins. They value the stock at 17.5x FY26 Ebitda (at par with UTCEM) and ascribe a fair value of ₹30,500.