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ICICI Securities
Shree Cement (Buy)
CMP: ₹18,955
Target: ₹23,500
Shree Cement continued to maintain its cost leadership in the industry with overall cost of production declining 7.3 per cent y-o-y during the quarter to ₹3,095/t, which along with better pricing resulted in 34.4 per cent y-o-y growth in EBITDA/t to ₹1,561/tonne during the quarter. However, on the revenue front, the company reported 2 per cent y-o-y decline in revenues to ₹3,218 crore (versus I-direct estimate: ₹3,036 crore) owing to demand weakness in the ending weeks of March 2020. Volumes for Q4FY20 dipped 5.3 per cent y-o-y to 6.9 MT. Blended realisations increased 3.5 per cent y-o-y to ₹4.656/t (vs I-direct estimate of ₹4,780/t). Due to higher realisations and a reduction in total costs/tonne by 6 per cent y-o-y, EBITDA margins expanded 772 bps y-o-y to 33.5 per cent (I-direct estimate: 28.3 per cent). Thus, EBITDA saw 27 per cent growth y-o-y to ₹1,079 crore (I-direct estimate: ₹856 crore).
Valuation and outlook: Shree Cement added capacities and entered non-core regions without jeopardising its profitability and return ratios. The company has maintained leadership on the cost front led by continued focus on cost rationalisation. We expect the company to continue its leadership on the costs, profitability and, thus, return front. Thus, we maintain our positive stance on the company with a ‘buy rating and an unchanged target price of ₹23,500.
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