ICICI Direct’s research report on Shree Cement
Shree Cements reported mixed set of Q4FY18 numbers. Revenues registered an increase of 15.3% YoY to Rs 2,811.1 crore (above I-direct estimate of Rs 2,741.5 crore) mainly led by 16.7% YoY increase in cement revenues to Rs 2,678.9 crore. However, power revenues declined by 8.4% YoY to Rs 132.2 crore mainly due to 20.6% YoY dip in volumes. The increase in cement revenues was due to 8.6% YoY increase in volumes to 6.4 MT and 7.5% YoY increase in cement realisations Blended EBITDA/t stood increased by 2.7% YoY to 977/t mainly led by 5.3% YoY increase cement EBITDA/t partially offset by 48.0% YoY dip in power EBITDA. The board has recommended a dividend of Rs30/share. The company has acquired 100% equity stake in Raipur Handling & Infrastructure Private Limited (operates railway siding) for Rs59.0 crore. The acquisition will help Shree Cement in transportation of goods through rail
Improving market share in the east, higher infra spends coupled with improving realisation in the companys key markets and capacity expansion is expected to drive Shrees revenues in FY18-20E. However, higher pet coke prices, change in fuel mix (from pet coke to imported coal in CPP) and higher freight cost are expected to weigh on the companys profitability in the near term. In addition, decline in power volumes, increase in operating expenses and rich valuations remain key near term concerns. Hence, we maintain HOLD recommendation on the stock with a revised target price of Rs 18,500 per share (i.e. at 17x FY20E EV/EBITDA).
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