Moneycontrol
Jan 12, 2018 11:20 AM IST | Source: Moneycontrol.com

Shree Cements gains 1% on robust Q3 numbers, 200% dividend; to acquire 92.8% stake in UAE Co

The company in its board meeting held on January 11 approved the acquisition of majority equity stake (minimum 92.83 percent) in Union Cement Company (UCC), UAE for an enterprise value of USD 305.24 million (Rs 1,945 crore).

 
 
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Shares of Shree Cements rose 1.5 percent in the early trade on Friday on strong December quarter numbers.

The company has reported a better-than-expected December quarter numbers, with net profit increased 41.6 percent at Rs 333.3 crore against Rs 235.4 crore posted during the same quarter last year.

The revenue also grew 23.1 percent at Rs 2,296.2 crore against Rs 1,864.4 crore, year-on-year.

The company in its board meeting held on January 11 approved the acquisition of majority equity stake (minimum 92.83 percent) in Union Cement Company (UCC), UAE for an enterprise value of USD 305.24 million (Rs 1,945 crore).

UCC is one of the leading manufacturer in the UAE and a listed company on the Abu Dhabi Stock Exchange (ADX).

It has an operating clinker capacity of 3.3 MTPA and cement capacity of 4 MTPA. And with this acquisition, the aggregate capacity of Shree Cements will increase from present 29.3 MTPA to 33.3 MTPA.

UCC has one subsidiary, UCC Norcem, in which it owns 60 percent stake which is engaged in the marketing of oil-well cement.

For the calendar year 2016, UCC reported revenues of USD 153.42 million and EBITDA of USD 33.73 million.

The company's board declared interim dividend at the rate of Rs 20 per equity share of Rs 10 each for the FY 2017-18, which shall be payable to those shareholders who hold shares on the record date fixed by the company i.e. January 19, 2018.

The dividend shall be paid from January 22, 2018.

The board also approved the issuance of secured redeemable non-convertible debentures on private placement basis for an amount up to Rs 500 crore in one or more tranches.

Emkay | Recommendation: Buy | Target Rs 22001

The broking firm Emkay prefers the company due to its efficient cost structure and superior capital allocation. It believes that the expansion is going to drive the growth.

The company's operating performance is below our estimate; EBITDA/T was at Rs 892 versus estimated of Rs 887. It downgraded FY18/19/20 EPS estimates by 17.6%/13.3%/13.1% to factor in energy costs.

Citi | Recommendation: Neutral | Target Rs 20,450

Citi has maintained neutral rating on Shree Cements with cut in target price to Rs 20,450 from Rs 20,800.

In Q3FY18 the company's EBITDA was inline, while it has reported flattish EBITDA/tonne. The cost pressures apparent; as petcoke has have come off, expects ease going forward.

Goldman Sachs | Recommendation: Neutral | Target Rs 18,800

The company Q3FY18 numbers were inline, while given the capacity addition pipeline will remain positive on growth trajectory.

Current valuations are adequately reflect capacity addition positives and new clinker unit to lead to lower freight costs.

Edelweiss | Recommendation: Buy | Target: Rs 22,854

With rolling over valuations to FY20, Edelweiss has maintained buy rating with increased target price at Rs 22,854 (from Rs 21,140 earlier).

Shree Cement’s (SRCM) recent board meeting had two outcomes: 1) Q3FY18 results and 2) SRCM approved acquisition of majority stake in UAE-based

Union Cement Company (UCC).

While implied enterprises value per tonne of USD 76 (4mtpa capacity) appears lucrative, UCC is likely to generate low return on equity (RoE) of around 6-7 percent at its current EBITDA margin of around 22 percent, the research house feels.

As RoE will merely meet potential yield loss for Shree Cement (hence no EPS/RoE dilution risk), it sees no great merit in the acquisition at current margins.

According to Edelweiss, asset creation in India would have generated far higher returns for the amount invested and hence find it a sentimental negative in the immediate term.

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At 09:17 hrs Shree Cements was quoting at Rs 19,664.25, up Rs 152.30, or 0.78 percent on the BSE.

Posted by Rakesh Patil
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