Brokerages unimpressed by Shree Cements' subdued Q4 show; remain neutral

The company announced second interim dividend of Rs 55 per share for FY23.

Shree Cements posted a subdued set of earnings for the quarter ended March, largely on the back of elevated input costs. The weak quarterly show also didn't seem to impress brokerages on the Street as most continue to retain their neutral stance on the cement manufacturer.

Shree Cements has recorded a 15.3 percent year-on-year decline in standalone profit at Rs 546.2 crore for the March FY23 quarter, impacted by a sharp increase in power & fuel cost.

The standalone revenue for the quarter grew by 16.7 percent to Rs 4,785 crore compared to the year-ago period.

The company announced a second interim dividend of Rs 55 per share for FY23.

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Here is what brokerages have to say about stock and the company post-March quarter earnings:

Morgan Stanley

The research firm has assigned an equal-weight rating to the company and set a target price of Rs 25,600 per share.

The Q4FY23 EBITDA (earnings before interest, taxes, depreciation, and amortization) was in line with Morgan Stanley's estimate but fell short of the consensus expectation. On a standalone basis, the company's revenue exceeded Morgan Stanley's estimate by 5 percent and was 3 percent higher than the consensus estimate.

The volumes, including clinker sales, were in line with Morgan Stanley's forecast. The beat was led by better realizations, but weak capex.

The cost per ton was higher than Morgan Stanley's estimate due to negative surprises in fuel costs. However, EBITDA per ton was in line with Morgan Stanley's forecast.

Jefferies

The research firm assigned a hold rating to the company and set a target price of Rs 21,850 per share.

The Q4FY2 EBITDA was a tad lower than estimate, while EBITDA per ton declined year-on-year (YoY) but showed improvement quarter-on-quarter (QoQ).

The company's cement volumes grew 10 percent YoY, driven by industry-wide demand pickup. However, the profit after tax (PAT) declined by 15 percent YoY, but it beat Jefferies' estimate due to a tax write-back.

Jefferies notes that Shree Cements has successfully repositioned itself as a premium cement brand. The company has significant and rapid capacity addition in favorable markets.

There is a resurfacing competition for market share in key markets, however, there has also been a delay in the fall of energy costs and a delay in adding capacities.

Investec

Investec has a rather bearish stance on Shree Cement as the brokerage firm retained its 'sell' call for the stock, with a price target of Rs 17,100. Its worthy to note that the price target reflects a downside potential of over 31 percent.

Investec believes the company's premium multiples currently reflect most of its capital expenditure intensity and cost curve positioning. However, the firm sees  both capex intensity and cost curve positioning eroding with time, resulting in such a low target price.

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