Emkay Global
Shree Cement (Hold)
Target: ₹23,740
CMP: ₹23,432.10
Q2 results were ahead of our estimates, driven by higher realisation (down 1.9 per cent q-o-q vs. estimated decline of 4.8 per cent) and lower opex. EBITDA stood at ₹990 crore vs. estimate of ₹820 crore and OPM stood at 32.7 per cent vs. estimate of 27.4 per cent.
Cement volume growth of 16.5 per cent, capacity utilisation of the South plant increased to 67-68 per cent from 30-35 per cent in Q2-FY20; realisation decline at just 1.9 per cent q-o-q; and 12 per cent y-o-y decline in variable costs are key positives.
Shree Cement has announced clinker capacity expansion in the East region. Grinding units (GU) in Odisha and Maharashtra will be commissioned in Q3. The company has plans to increase its capacity to 57 mt from 40 mt in three years and 80 mt in six years.
We raise FY21-23E EBITDA by 4-6 per cent on better Q2 and higher realisation assumptions.
Valuations at 19.2x/16.7x EV/EBITDA and EV/ton of $227 appear rich and leave little room for disappointments. Average RoCE will be 16.8 per cent between FY21 and FY23 vs. 18.7 per cent between FY13 and FY20.