Shree Cement - Sustaining industry leading growth and profitability - ICICI Securities

Shree Cement's (SRCM) Q2FY21 standalone EBITDA of Rs9.9bn (up 17% YoY) was significantly ahead of our / consensus estimate owing to better than expected realisation and lower costs. Blended realisation declined 2% QoQ (I-Sec: 4%); while costs declined 9% YoY (I-Sec: 8%). Market share gains continues for SRCM with volumes increasing 14% YoY while sustaining industry-leading EBITDA/te of Rs1,513/te (I-Sec: Rs1,397/te). SRCM may continue to gain market share backed by non-trade volume push in North, strong demand in East and higher YoY utilisation in South. SRCM's consistent track record of market share gains coupled with industry-leading margins justifies its premium valuation, in our view. We raise our FY21E EBITDA by 4% and increase our target price to Rs28,000/share (earlier Rs25,800) based on 17x Sep22E EV/E on half yearly rollover. Maintain BUY.

- Standalone revenue increased 8% YoY to Rs30bn, in line with our estimates. Cement plus clinker volume increased 14% YoY at 6.53mnte (in-line with our estimates) owing to market share gains across regions. Blended realisation declined 2% QoQ/ 5.5% YoY to Rs4,581/te vs our estimate of 4% QoQ decline. Our channel checks suggest that cement prices have increased by Rs10-15/bag in trade segment and Rs25-30/bag in non-trade segment in North, while they have remained broadly flat MoM in East and South regions in Oct'20.

- Standalone EBITDA increased 17% YoY to Rs9.9bn (I-Sec: Rs9.2bn). Blended EBITDA/te (including power) increased 3% YoY to Rs1,513/te (I-Sec: Rs1,397/te). Total cost/te declined 9% YoY to Rs3,114/te. Raw material plus power & fuel cost/te declined 21% YoY owing to lower fuel prices. Freight cost/te increased 7% YoY on increase in diesel prices. Other expenses/te (including employee costs) declined 9% YoY owing to better operating leverage. Depreciation declined sharply 35% YoY to Rs2.8bn; while other income increased 77% YoY owing to higher treasury surplus. Company has utilised Rs5.7bn from Rs24bn equity raise till Sep'20-end.

- Consolidated revenue / EBITDA / PAT stood at Rs32.5bn / Rs10bn / Rs5.3bn respectively in Q2FY21. UAE-based Union Cement's EBITDA declined 62% YoY to Rs117mn; though has improved QoQ from EBITDA loss of Rs127mn in Q1FY21.

- EBITDA to OCF conversion was strong at 127% aided by Rs6.4bn working capital release. Consolidated FCF generation stood at Rs15bn post capex spend of Rs4bn in H1FY21 increasing net cash to Rs50bn. SRCM may generate FCF of Rs62bn after factoring-in capex of Rs49bn for organic expansions over FY20E-FY23E with net cash increasing to Rs103bn by FY23E. We model standalone volume CAGR at 13% over FY20-FY23E and expect blended EBITDA/te to increase to Rs1,571/te by FY23E from Rs1,474/te in FY20 (Rs1,467/te in H1FY21).

Shares of SHREE CEMENT LTD. was last trading in BSE at Rs.23866.95 as compared to the previous close of Rs. 23364.75. The total number of shares traded during the day was 3864 in over 1062 trades.

The stock hit an intraday high of Rs. 24075 and intraday low of 23462.55. The net turnover during the day was Rs. 92210858.

Source : Equity Bulls

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