Shree Cement’s Q2FY18 EBITDA of Rs 560 crore was higher than our estimate of Rs 530 crore owing to better than expected realisation and lower cost which was partly offset by lower than expected volumes. Cement realisation (including other operating income) declined 0.8 % q-o-q vs our estimate of 2.2 % q-o-q decline; while cement cost/te increased by 14 % y-o-y vs our estimate of 15.5 % y-o-y increase. Cement volumes (including clinker sales) increased by 7 % y-o-y to 4.88mnte; while EBITDA/te declined 19 % y-o-y to Rs 1,133/te (I-Sec: Rs 1,033/te). We cut our FY18-FY20 EBITDA by 3-8% factoring lower profitability in power segment and PAT sharply by 23- 25% on higher tax rate as company now will be taxed under maximum marginal tax rate instead of MAT earlier. Hence, we reduce our target price to Rs 21,000/share based on 15x Mar’20E EV/E discounted to Dec’19E (on quarterly rollover). We factor 13.4% volume CAGR over FY17-FY20E as SRCM expands its capacity by >40% to 42mnte.
We expect cement EBITDA/te to increase from R1,124/te in FY17 to Rs 1,483/te by FY20E driven by improvement in realisation and operating leverage. Maintain ‘Buy’. Cement revenues increased 10 % y-o-y to Rs 2,030 crore. Realisation increased 2.6 % y-o-y/declined 0.8 % q-o-q to Rs 4,170/te (I-Sec: R4,111/te). While cement volumes increased 10.8% y-o-y to 4.87 mnte; clinker sales were sharply down from 0.17mnte to 0.01mnte. Power segment revenues declined by 47 % y-o-y to Rs 1.0 billion.
Cement EBITDA/te declined 19 % y-o-y to Rs 1,133/te. Total cost/te for cement increased sharply 14 % y-o-y/2% q-o-q to Rs 3,037/te led by higher energy and freight costs, which was partly offset by lower other expenses. Freight cost/te rose sharply 23% y-o-y/ 3 % q-o-q owing to strict adherence to loading norms in Rajasthan and increase in diesel prices, while power and fuel costs saw a steep jump of 32% y-o-y led by an increase in petcoke prices.