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Centrum Broking
Shree Cement (Sell)
CMP: ₹23,923.6
Target: ₹18,178
Shree Cement’s (SRCM) 3QFY20 performance was driven by realisation gains as volume growth stayed muted that helped revenue growth of about 2 per cent y-o-y. Despite capacity addition the volume grew by 5.3 per cent y-o-y. Focus on remunerative northern region and higher premium product sales helped realisation benefits. Costs/tonner was well controlled with ~9 per cent y-o-y decline driven by logistic and energy cost savings. Effectively SRCM’s EBITDA grew ~23 per cent to ₹849 crore driven by cement segment.
The power segment’s performance was weak with EBITDA loss of ₹3.2 crore. Adjusted PAT grew 10 per cent to ₹310 crore and was impacted on account of higher depreciation and interest expenses of ₹432 crore/₹74.1 crore respectively. Capacity addition by SRCM, infrastructure segment driven demand, presence in over supply markets may reverse the higher realisation trend for SRCM.
Higher realisation base in FY20 will further add worries in FY21. This will challenge the higher EBITDA margin trajectory in FY21/FY22 for SRCM. Factoring this we have revised our earnings for FY20/FY21 to ₹411/₹512 (earlier ₹432/₹531 respectively). We introduce FY22e conservative estimates of ₹565/sh. We continue with our ‘Sell’ rating on SRCM with a revised target price of ₹18,178.
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