Sell Shree Cement - Q3FY12 Review First cut: EBITDA in-line; Performance improves across both cement and power segments - Karvy Stock Broking

(SRCM IN; SELL; MktCap: US$ 1,553 mn; CMP: Rs 2,240; TP: Rs 1,964; 12% Downside)

Shree Cement's Q3FY12 EBITDA of Rs334mn came in-line with our estimates of Rs333mn. Net sales increased 61% YoY (5% ahead of our estimates).

Net sales growth was led by 9% YoY cement sales volume growth and 33% blended realisation growth. The YoY realisation growth benefitted from changing sales mix (12% clinker last year v/s 1% in current quarter). Higher power sales of ~250mn units during the quarter also boosted top-line growth.

Operating costs in the cement division benefitted as higher QoQ volume growth led to positive operating leverage. However, on YoY basis, the cost pressure surged by 15% as both fixed and variable costs continue to trend northwards. The company also reported an expense of Rs628mn as purchase of traded goods. This is primarily exchange traded merchant power which also gets added in the top-line. Adjusting for this, top-line growth came in-line with our estimates.

Cement EBITDA/mt at Rs1064 v/s our expectations of Rs1087. We estimate the company delivered Power EBITDA to be ~Rs250mn v/s our est of Rs180mn.

Higher depreciation of Rs2.4bn on account of the commissioning of 150MW of merchant power plants during the quarter. Further, interest costs firmed up 11% sequentially to Rs520mn.

Source : Equity Bulls

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