Hold Shree Cement; target of Rs 24,184: ICICI Securities

hold

ICICI Securitie's research report on Shree Cement

SRCM’s volume at 9.64mn tonnes rose 1.2% QoQ (up 8% YoY; being broadly in line with our expectation) in Q1 wherein majority of its peers reported a sequential decline. Quest for market share led to blended realisation tripping 6.3% QoQ (in our view, core cement realisation is likely to have slipped ~8% QoQ vs our 2.5% drop estimate). If the revenue miss was not enough, costs disappointed too – with freight cost/t racing 5.5% QoQ and ‘other expenses’ rising 9% QoQ – leading to 2.6% rise in overall cost/t. Blended EBITDA/t at INR 951 (down 9% YoY; 32% QoQ) stood 19% below estimates. Despite effective tax rate stooping down to a low of 9%, PAT at INR 3.2bn was down 45% YoY/52% QoQ, being 25% below expectations.

Outlook

Shree Cement’s (SRCM) volume focus in Q1FY25 was exceptional given it stood flat QoQ (up 8% YoY) as against 5-20% drop reported by industry majors. However, implied gain in market share came at the cost of margin, which slipped 700bps QoQ (flat YoY). As blended realisation plunged >6% QoQ while cost/ton rose 2.6%, EBIDTA at INR 9.2bn (down 2% YoY; 31% QoQ) stood 18% below estimates. Calibrating for management's guidance of a weak Q2/Q3FY25, we chop FY25/26E EBIDTA by 21%/11%. Continued weakness in cement prices poses a risk to our revised estimates even as SRCM appeared optimistic on recovery H2FY25 onwards. Keeping faith, we continue to value SRCM at 16x FY26E EV/EBITDA and maintain HOLD with a revised TP of INR 24,184 (vs INR 27,085 earlier).

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