Shree Cement reported Q1FY18 results ahead of expectation with volumes growing 14% y-o-y and realisation improvement by 8% y-o-y. However higher freight cost and fuel expenses ensured that EBITDA declined by 8% y-o-y vs expectation of 16% decline, although improving 42% q-o-q. We have increased our volume estimates by 2% and realisations by 1% for FY18/19, but this has been offset by higher costs and low sales & profitability from power segment. Maintain ‘hold’ with a revised target price of Rs 18,109 valuing the stock at 15x EV/EBITDA (same earlier), 10% higher than last five year average. Upside risk: Volume growth improves further. Downside risk: Pricing decline in east or north.
Shree Cement reported sales volume growth of 14% y-o-y to 5.89mnt (cement+clinker) in Q1FY18. This was largely led by stellar performance in east where channel checks suggest 20% y-o-y volume growth for the industry. North volumes have also improved y-o-y albeit much lower than east. Led by 5% y-o-y pricing improvement in East and 15% + y-o-y improvement in North, Shree reported blended realisation improvement of 8% y-o-y, 10% q-o-q. This has largely been the driver behind EBITDA per ton improvement on a q-o-q, basis from Rs 818 in Q4FY17 to Rs 1,157 in Q1FY18.
Shree reported a steep jump of 58% y-o-y in fuel costs due to a jump in pet coke prices. Freight costs increased 25% y-o-y due to higher diesel prices as well as longer lead distance due to higher sales contribution from east. Power segment revenues have declined 54% y-o-y due to lower demand. Simultaneously profitability has also declined due to higher raw material cost, leading to an EBITDA loss of Rs 14 million vs profit of Rs 784 million y-o-y.