SRCM took a reversal of DMF provision of Rs 40.33 crore in the quarter to account for Jan-Sept 2015 levies. The power division delivered an EBITDA of Rs -0.2/unit as higher pet-coke costs decreased profitability in the quarter.
Shree Cement (SRCM) reported an EBITDA of Rs 1,004/t (vs estimate of Rs 1,099/t, 2.9/-10% y-o-y/q-o-q). Costs surprised on the downside, with P&F (Rs 746/t, 39.9/% y-o-y/q-o-q) and freight costs (Rs 1,117/t, 30.5/3.7% y-o-y/q-o-q) drawing earnings down. SRCM also announced an acquisition of UAE based Union Cement (3.3/4.0 MTPA clinker/cement capacity). The acquisition marks SRCM’s first steps into the global market. The company has been valued at an EV of $305.24 million (EV/t of $76), and the acquisition will be completed in 1HFY19. With the Union Cement acquisition, SRCM will become a global player with access to markets in Eastern Africa and Middle East. The acquisition also aids in increasing its capacity to 46.3 MTPA, next only to Ultratech. We expect SRCM to continue outpacing peers on capacity additions, both on costs and turnaround. We remain cautious, only for valuations and maintain NEUTRAL with a TP of Rs 17,195 as more details from the merger emerge. Realisations and volumes were in line with estimates. SRCM took a reversal of DMF provision of Rs 40.33 crore in the quarter to account for Jan-Sept 2015 levies. The power division delivered an EBITDA of Rs -0.2/unit as higher pet-coke costs decreased profitability in the quarter. The clinker unit at Raipur of 2.6 MTPA was commissioned in the quarter thereby increasing SRCM’s stronghold in the East.
Pet-coke prices have tempered from the highs in December by 4%. However, with the import duty at 10% from 2.5%, the P&F costs should increase. Sand continues to be a deterrent in the growth, as sand availability declined in Rajasthan. Nevertheless, the situation seems to have improved in Uttar Pradesh and Bihar. SRCM should generate better volumes and realizations from these key regions. The addition of 5.5 MTPA grinding unit in Bihar, likely to be commissioned in 4QFY18, should drive the uptick.