Moneycontrol
Get App
Last Updated : May 29, 2019 10:46 AM IST | Source: Moneycontrol.com

Shree Cement: Steady Q4 show, but valuation tempers excitement

Sachin Pal @moneycontrolcom
 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

Highlights:
- Power business had a strong quarter
- Receding cost pressures drive improvement in margins
- Demand continues to remain solid in most parts

- Valuation expensive at 25 times FY19 EV/EBITDA

-------------------------------------------------

Shree Cement delivered yet another quarter of steady financial performance for Q4 of 2018-19. A strong show by the power business, along with solid volume expansion in the cement division, gave shine to the quarterly play.

Close

Key results highlights

- The company reported sales growth of 17 percent and earnings before interest, tax, depreciation and amortisation (EBITDA) increase of 35 percent year-on-year (YoY) as the margins expanded by more than 200 bps. Strong demand from infrastructure and housing segments drove volumes up by 13 percent during January-March. However, higher financing costs and depreciation expenses due to a recently commissioned plant resulted in a subdued bottom line.

Capture-1

- Cement business revenue growth of 15 per cent YoY came largely on the back of higher volumes as realisations continued to remain stable. Power segment revenue, excluding inter-segment sales, surged more than 50 percent, topping Rs 200 crore. Margin for this segment also improved, helped by sales uptick.

Capture-3

- Increasing realisations (up 2 percent) and declining cost pressures (down 3 percent) boosted cement segment profitability for the three months to March. The company reported EBITDA per tonne at Rs 1,102 during the quarter under review, primarily because of a decline in petcoke and diesel prices. Realisations dropped sequentially despite the pan-India cement price hikes during February and March.

- Shree Cement’s foray into the southern market is progressing well. The grinding unit in Karnataka is operating at 30-35 percent capacity utilisation and the company is planning to ramp up utilisation to 60 percent over the next 3-4 quarters.

Capture-2

- On the international front, Union Cement, the UAE-based subsidiary which the company acquired in January 2018, is facing a challenging operating environment due to muted demand conditions in the region. Shree Cement, therefore, has stepped up focus on exports to mitigate the near-term weakness in the local market.

-The capex for FY20 is pegged at Rs 1,500-1,600 crore and will primarily be used for setting up two new plants in Jharkhand and Odisha, which are expected to go on stream in the next 2-3 quarters. Furthermore, the cementmaker is planning a 3 million tonne grinding unit in Pune that will commence operations by Q3 FY21.

- Working capital deteriorated moderately in the last quarter as the trade receivables jumped to Rs 732 crore at the end of Q4 FY19, from Rs 459 crore a year ago. The management attributed the sharp rise to the tight liquidity environment.

Outlook and recommendation

- Large-scale infrastructure projects will pitchfork the cement industry growth to 7-8 percent over the next 12 months. Shree Cement expects to outpace the industry and is targeting a growth of 10-12 percent on the back of expansion in newer markets and regions.

- The company has a strong positioning in northern and western markets and is one of the lowest cost cement producers in the country. Going forward, Shree Cement will have a greater focus on realisations in comparison to volumes. In terms of valuations, the company trades at fairly expensive one of 25 times trailing 12 months enterprise value/EBITDA. The current valuation deters us from buying the stock at current levels and investors, therefore, should wait for an opportune moment to enter the stock.

Read:  A shining star from the midcap cement pack

For more research articles, visit our Moneycontrol Research page

Disclaimer: Moneycontrol Research analysts do not hold positions in the companies discussed here

Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.
First Published on May 21, 2019 01:40 pm
Loading...
Sections
Follow us on
Available On
PCI DSS Compliant