Cement
November 11, 2014
Shree Cement
India Research
Bloomberg: SRCM IN
Reuters: [Link]
RESULT REVIEW
HOLD
Strong Cement Volume Growth amid Cost
Efficiency; Lower NSR QoQ moderates Profit Growth
Recommendation
Shree Cements 1QFY15 net sales & EBITDA rose 29% & 37% YoY to Rs16.1
bn & Rs3.4 bn respectively while PAT declined 33% YoY to Rs1.16 bn.
Cement EBITDA rose 46% YoY to Rs3.2 bn. However, Power EBITDA
declined 32% YoY to Rs210mn (6% of total EBITDA).
Cement EBITDA expanded by Rs150 per MT YoY to Rs821: Demand pickup in north YoY and market share gain led by capacity expansion helped
Shree Cements 19% YoY (+5% QoQ) volume growth to 3.9 mn MT.
However, NSR dipped 9% QoQ (our estimates 7% QoQ decline) led by
impact of monsoon quarter and competitive pressure in non-trade segment.
Despite the sharp QoQ decline, low base of last year boosted YoY NSR
growth to 10%. Operating costs per MT remained stable QoQ (+6% YoY) inline with our expectations. Subsequently, aided by both strong volume and
NSR growth, Cement EBITDA rose 46% YoY (6% lower vs our estimates).
52-week High/Low (Rs)
CMP:
Rs9,250
Target Price:
Rs9,760
Previous Target Price:
Rs9,300
Upside (%)
6%
Stock Information
Market Cap. (Rs bn / US$ mn)
322/5,239
9,298/4,100
3m ADV (Rs mn/US$mn)
167/5.7
Beta
1.0
Sensex/ Nifty
27,875/8,344
Share outstanding (mn)
35
Stock Performance (%)
Absolute
1M
11.1
3M
27.7
12M YTD
45.0 113.1
4.8
16.1
55.2
Rel. to Sensex
Power volumes surge but cost pressure leads to dip in profitability: While
Performance
merchant power sales rose 17% YoY to 488mn KwH, generation cost rose
29,500
11% YoY ahead of 1% NSR growth. Subsequently, power EBITDA declined
27,500
25,500
23,500
32% YoY to 210mn. (54% lower vs our estimates). Total EBITDA rose 37%
21,500
19,500
YoY (11% below our estimates). Thereafter, Shree Cements depreciation
17,500
15,500
doubled YoY on account of capacity addition. This along-with lower other
income led to 33% YoY decline in PAT (vs our estimates of 18% growth).
Net Sales
EBITDA
EBITDA margin (%)
PAT (Rs)
EPS (Rs)
RoE (%)
RoCE (%)
EV/EBITDA (x)
P/E (x)
Source: Company, Karvy Stock Broking
Sensex (LHS)
Shree Cement (RHS)
Source: Bloomberg, Karvy Stock Broking
Earnings Revision
(%)
Sales
FY15E
FY16E
FY17E
2.5
0.8
0.4
10.2
2.3
1.0
EBITDA
PAT
Source: Karvy Stock Broking
Exhibit 1: Financial Summary (Standalone)
Y/E Jun (Rs mn)
11,000
9,000
7,000
5,000
3,000
Nov-13
Dec-13
Jan-14
Mar-14
Apr-14
May-14
Jul-14
Aug-14
Sep-14
Nov-14
Strong franchise but rich valuation; Downgrade to HOLD: While we
maintain our EBITDA estimates, we cut PAT estimates for FY15E/16E/17E by
10%/ 2%/ 1% respectively to factor in higher depreciation cost. Driven by its
aggressive but cost efficient expansions, Shree Cement should deliver 15%
cement volume CAGR during FY14-17E. Shree will have diversified and
major sales presence in the northern, central and eastern regions by end of
FY16E. These should drive its 34% EBITDA CAGR. We value Shrees
cement/power businesses at 9x/5x (earlier 8.5x/4x) FY17E EBITDA on account
of its cost leadership despite its fast expansion. This leads to SOTP value of
Rs9,760 (earlier 9,300) and implies EV per MT of USD180 (FY17E). With
limited upside on CMP we downgrade the stock to HOLD from BUY.
FY13
FY14
FY15E
FY16E
FY17E
55,894
15,603
58,873
13,898
75,942
19,521
91,686
26,466
110,879
33,812
27.9
23.6
25.7
28.9
30.5
10,005
8,586
10,101
17,982
25,005
287.2
246.5
289.9
516.2
717.8
30.4
20.1
19.8
28.7
30.6
26.1
18.4
19.8
28.8
33.2
32.2
37.5
31.9
17.9
12.9
19.7
21.8
15.4
11.0
8.2
61.8
Analysts Contact
Rajesh Kumar Ravi
022 6184 4313
[Link]@[Link]
November 11, 2014
Shree Cements
Quarterly Performance Trend
Exhibit 2: Key Standalone Financial trend
Financials (Rs mn)
Jun-12 Sep-12 Dec-12 Mar-13
Jun-13 Sep-13 Dec-13
Net Sales
Mar-14
Jun-14 Sep-14
YoY % QoQ %
14,553
13,238
14,280
14,429
14,490
12,475
13,181
16,649
16,567
16,081
28.9
(2.9)
Total Expenditure
9,741
9,300
10,563
10,222
10,615
9,981
10,476
12,339
12,179
12,677
27.0
4.1
Raw Materials
1,362
1,300
1,136
1,085
1,021
997
910
1,076
1,492
1,308
31.2
(12.3)
Power and Fuel
3,415
3,290
4,227
3,487
3,973
3,005
3,123
3,818
3,842
4,135
37.6
7.6
Employee
746
704
749
794
1,007
1,013
1,011
915
1,014
1,128
11.3
11.2
Transport
2,355
2,130
2,284
2,395
2,341
2,493
2,809
3,426
3,177
3,170
27.1
(0.2)
Others
1,863
1,875
2,167
2,462
2,273
2,474
2,623
3,103
2,655
2,937
18.7
10.6
EBITDA
4,811
3,938
3,717
4,206
3,875
2,494
2,705
4,311
4,388
3,404
36.5
(22.4)
EBITDA margins (%)
33.1
29.7
26.0
29.2
26.7
20.0
20.5
25.9
26.5
21.2
118
(532)
Other Income
322
292
323
424
837
740
99
497
515
281
(62.1)
(45.5)
Depreciation
818
942
818
1,265
1,332
1,139
1,156
1,667
1,538
2,227
95.5
44.7
4,315
3,288
3,222
3,365
3,381
2,095
1,649
3,141
3,365
1,458
(30.4)
(56.7)
EBIT margins (%)
29.7
24.8
22.6
23.3
23.3
16.8
12.5
18.9
20.3
9.1
(772)
(1,124)
Interest
480
543
563
447
378
312
309
363
308
350
12.1
13.7
Taxes
320
454
365
176
159
50
153
494
3,057
1,109
(37.8)
(63.7)
3,516
2,291
2,294
2,741
2,844
1,733
1,187
2,284
2,515
1,155
(33.3)
(54.1)
24.2
17.3
16.1
19.0
19.6
13.9
9.0
13.7
15.2
7.2
(670)
(800)
100.9
65.8
65.9
78.7
81.6
49.7
34.1
65.6
72.2
33.2
(33.3)
(54.1)
EBIT
Net Profits
PAT margins (%)
EPS (Rs)
Source: Company, Karvy Stock Broking
Exhibit 3: Operational Analysis quarterly across Cement and Power divisions
Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13
Mar-14
Jun-14 Sep-14 YoY % QoQ %
Cement
Total Sales vol (mn mt)
Trends (Rs/mt)
Net sales realization (NSR)
Raw material cost
Power and fuel cost
RM and Fuel combined
Transport cost
Employee cost
Other expenses
Operating cost
EBITDA
3.4
3.0
3.0
3.3
3.2
3.3
3.4
3.8
3.7
3.9
18.9
4.5
3,805
404
604
1,008
699
221
553
2,481
1,323
3,905
428
744
1,171
700
232
617
2,720
1,185
3,733
380
594
974
765
251
725
2,714
1,019
3,544
333
385
719
735
244
756
2,454
1,090
3,602
322
554
876
739
318
718
2,651
950
3,335
306
525
830
765
311
759
2,665
670
3,434
265
576
841
817
294
763
2,715
719
3,878
281
590
871
893
239
809
2,790
1,087
4,015
402
585
987
856
273
716
2,832
1,183
3,655
337
631
969
818
291
757
2,835
821
9.6
10.3
20.4
16.7
6.9
(6.4)
(0.2)
6.4
22.4
(9.0)
(16.1)
8.0
(1.8)
(4.5)
6.4
5.9
0.1
(30.7)
390
4.4
3.5
0.9
7.3
307
4.4
3.4
1.1
8.5
786
4.0
3.1
0.9
18.1
722
4.0
3.1
0.9
15.6
795
3.9
2.8
1.1
21.8
417
3.8
3.1
0.7
12.4
409
3.4
2.8
0.6
8.7
536
3.3
3.1
0.3
3.2
498
3.4
3.4
0.0
0.0
488
3.9
3.5
0.4
6.2
Power
Power Sold (mn units)
Net Realization (Rs/unit)
Opex (Rs/unit)
EBITDA (Rs/unit)
Power share of total EBITDA (%)
17.0
(2.1)
1.1
15.8
11.4
3.0
(42.0) #DIV/0!
Source: Company, Karvy Stock Broking
November 11, 2014
Shree Cements
Outlook and Valuations
Exhibit 4: Key operational estimates
FY12
FY13
FY14
FY15E
FY16E
FY17E
14.9
8.6
12.46
4.7
14.25
14.4
17.4
22.0
19.3
11.0
21.9
13.3
3,510
401
689
613
215
552
2,469
1,040
3,654
313
553
683
271
779
2,600
1,049
3,691
316
561
761
277
834
2,749
933
3,948
371
598
827
282
802
2,879
1,055
4,285
371
618
856
304
831
2,979
1,293
4,582
374
630
893
325
883
3,105
1,466
1,322
152.3
4.3
3.6
0.7
6.0
2,610
97.4
4.0
3.0
1.0
16.2
1,860
(28.7)
3.44
3.1
0.3
4.3
1,925
3.5
3.9
3.4
0.5
4.6
2,268
17.8
4.1
3.5
0.5
4.6
2,558
12.8
4.3
3.7
0.6
4.4
Cement & Clinker Sales
Sales Volume (mn mt)
YoY Growth (%)
Trends (Rs/MT)
Net sales realization
Raw material cost
Power and Fuel cost
Freight cost
Employee cost
Other Expenses
Opex
EBITDA (RHS)
Merchant Power Sales
Sales volume (mn KwH)
YoY Growth (%)
Net realization (Rs/KwH)
Opex (Rs/KwH)
EBITDA/KwH
Power Share of total EBITDA (%)
Source: Company, Karvy Stock Broking
Exhibit 5:
Estimates Revision Summary
Y/E Jun
(Rs mn)
Net Sales
FY15E
FY16E
FY17E
Revised Estimates
75,942
91,686
110,879
FY15E FY16E
% Revision
2.5
0.8
Operating expenditure
EBITDA
Depreciation
Other income
56,421
19,521
8,027
1,311
65,220
26,466
6,000
1,433
77,067
33,812
5,000
1,543
3.3
0.2
14.7
(32.5)
1.2
(0.2)
0.0
(28.9)
EBIT
Interest expenditure
PBT
Tax
12,805
1,450
11,355
1,255
21,899
1,415
20,484
2,502
30,354
1,155
29,199
4,194
(11.2)
(2.4)
(12.2)
(25.3)
(2.8)
2.9
(3.2)
(8.9)
Adjusted PAT
10,101
17,982
25,005
(10.2)
(2.3)
FY17E
Comments
0.4
Raised volume estimates by
5%/2%/1%
0.5
respectively and cut NSR by 1% each
0.0
0.0
Higher depreciation to factor in capex
(26.3)
impact; Lowered other income in-line with
(1.8)
1QFY15 trend.
0.0
(1.8)
Higher depreciation and lower other income
(5.9)
leads to PAT downgrades
(1.1)
Source: Company, Karvy Stock Broking
Outlook and Valuations
Aggressive Capex in FY14-15E: Shree Cement has been continuously expanding
its cement and power capacities. During FY13-16E its cement capacity would
expand by 9.5 mn MT to 23 mn MT (70% increase). It also increased its WHR
capacity by 80% to 81 MW over the last 3 years thereby boosting its operational
cost efficiency.
During FY15-16E, Shree Cement will increase its clinker capacity by 2 mn MT
and grinding capacity by 2mn MT at Raipur (Chhattisgarh). These will be
commissioned by end of FY15E. Another grinding unit of 2 mn MT is expected to
be commissioned in UP by Dec2015 (FY16E). The recently acquired 1.5 mn MT
grinding unit in Panipat (UP) from JPA will be amalgamated in the standalone
company by Dec2014.
3
November 11, 2014
Shree Cements
Strong Franchise but rich valuations; Downgrade to HOLD: Driven by its
aggressive but cost efficient expansions, Shree Cement should deliver 15%
cement volume CAGR during FY14-17E. Shree will have diversified and major
sales presence in the northern, central and eastern regions by end of FY16E.
These should drive its 34% EBITDA CAGR.
We value Shrees cement/power businesses at 9x/5x (earlier 8.5x/4x) their FY17E
EBITDAs respectively on account of its cost leadership despite its fast pace of
expansion. This leads to SOTP value of Rs9,760 (earlier 9,300) and implies EV per
MT of USD180 (FY17E). With limited upside on CMP we downgrade the stock to
HOLD from BUY.
November 11, 2014
Shree Cements
Exhibit 6: Profit & Loss Statement (Standalone)
Y/E Jun (Rs mn)
FY13
FY14
FY15E
FY16E
FY17E
Net Revenues
% growth
55,894
20.6
58,873
5.3
75,942
29.0
91,686
20.7
110,879
20.9
Operating expenditure
EBITDA
% growth
Depreciation
40,291
15,603
18.5
4,394
44,975
13,898
(10.9)
5,590
56,421
19,521
40.5
8,027
65,220
26,466
35.6
6,000
77,067
33,812
27.8
5,000
EBIT
Interest expenditure
Other income
PBT
1,883
13,092
1,931
11,160
1,849
10,158
1,292
8,866
1,311
12,805
1,450
11,355
1,433
21,899
1,415
20,484
1,543
30,354
1,155
29,199
Tax
Adjusted PAT / Net profit
% growth
1,155
10,005
98.5
280
8,586
(14.2)
1,255
10,101
17.6
2,502
17,982
78.0
4,194
25,005
39.1
Source Company, Karvy Stock Broking
Exhibit 7: Balance Sheet (Standalone)
Y/E Jun (Rs mn)
FY13
FY14
FY15E
FY16E
FY17E
Cash & liquid equivalent
Debtors
Inventory
25,827
3,147
5,305
24,037
2,966
8,098
31,870
3,745
7,698
35,866
4,521
8,792
45,864
5,164
10,632
Loans & advances
Investments Long term
Gross Block
Net Block
6,940
59,403
17,819
6,892
69,076
21,938
4,609
87,076
31,911
5,171
100,076
38,911
5,845
113,076
46,911
CWIP
Miscellaneous
Total assets
Current liabilities & provisions
1,333
1,305
61,675
10,255
7,585
1,954
73,469
14,180
5,000
1,665
86,498
16,563
6,000
1,636
100,898
18,942
6,000
1,612
122,029
21,233
Debt
Other liabilities
Total liabilities
Shareholders' equity
12,882
74
23,211
348
11,999
182
26,360
348
14,800
182
31,545
348
11,300
182
30,424
348
7,800
182
29,215
348
Reserves & surpluses
Total networth
Total networth & liabilities
38,116
38,464
61,675
46,761
47,109
73,469
54,605
54,953
86,498
70,126
70,474
100,898
92,466
92,814
122,029
Source Company, Karvy Stock Broking
November 11, 2014
Shree Cements
Exhibit 8: Cash Flow Statement (Standalone)
Y/E Jun (Rs mn)
FY13
FY14
FY15E
FY16E
FY17E
PBT
Depreciation
11,198
4,356
8,956
5,499
11,084
8,027
20,212
6,000
28,927
5,000
Interest
Tax paid
(Incr) / decr in net WC
Other income
1,931
(2,410)
(644)
(1,804)
1,292
(556)
1,187
(1,565)
1,450
(1,205)
3,996
(1,311)
1,415
(2,452)
(278)
(1,433)
1,155
(4,144)
(1,096)
(1,543)
Other non cash items
Cash flow from operating activities
(Incr) / decr in capital expenditure
(Incr) / decr in investments
(37)
12,591
(8,935)
5,522
(807)
14,007
(15,829)
2,402
(966)
21,075
(15,410)
(5,000)
(966)
22,497
(13,995)
(8,000)
(966)
27,333
(12,995)
(15,000)
Others
Cash flow from investing activities
Incr / (decr) in borrowings
Issuance of equity
716
(2,697)
(8,762)
-
1,088
(12,339)
(894)
-
1,306
(19,104)
2,801
-
1,428
(20,567)
(3,500)
-
1,538
(26,457)
(3,500)
-
Dividend paid
Interest paid
Cash flow from financing activities
Net change in cash
(690)
(366)
(9,817)
77
(895)
231
(1,558)
110
(489)
(1,450)
862
2,833
(1,019)
(1,415)
(5,934)
(4,003)
(1,223)
(1,155)
(5,878)
(5,002)
Source Company, Karvy Stock Broking
Exhibit 9: Key Ratios
Y/E Jun (%)
FY13
FY14
FY15E
FY16E
FY17E
EBITDA margin
EBIT margin
27.9
23.5
23.6
17.3
25.7
16.9
28.9
23.9
30.5
27.4
Net profit margin
Dividend payout ratio
Net debt: equity
Gross block turnover
18.0
8.1
(0.3)
1.0
14.6
10.4
(0.3)
0.9
13.3
10.1
(0.3)
1.0
19.6
6.8
(0.3)
1.0
22.6
5.7
(0.4)
1.0
RoCE
RoIC
RoE
26.1
54.7
30.4
18.4
33.7
20.1
19.8
32.1
19.8
28.8
47.1
28.7
33.2
52.7
30.6
Source Company, Karvy Stock Broking
Exhibit 10:
Valuation Parameters
Y/E Jun
FY13
FY14
FY15E
FY16E
FY17E
EPS (Rs)
DPS (Rs)
287.2
20.0
246.5
22.0
289.9
25.0
516.2
30.0
717.8
35.0
Book value per share (Rs)
1,104
1,352
1,577
2,023
2,664
32.2
37.5
31.9
17.9
12.9
8.4
6.8
5.9
4.6
3.5
19.7
21.8
15.4
11.0
8.2
EV/Sales (x)
5.5
5.2
4.0
3.2
2.5
EV/mt(USD)
387
293
242
215
205
P/E (x)
P/BV (x)
EV/EBITDA (x)
Source Company, Karvy Stock Broking
November 11, 2014
Shree Cements
Stock Ratings
Buy
Hold
Sell
:
:
:
Absolute Returns
> 15%
5-15%
< 5%
For further enquiries please contact:
research@[Link]
Tel: +91-22-6184 4300
Disclosures Appendix
Analyst certification
The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect
his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be
directly or indirectly related to the specific recommendation(s) or views contained in this research report.
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holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are
restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been
forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd. This report is
intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed
herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures nor other derivatives
related to such securities.
Karvy Stock Broking Limited
Office No. 701, 7th Floor, Hallmark Business Plaza, Opp.-Gurunanak Hospital, Mumbai 400 051
Regd Off : 46, Road No 4, Street No 1, Banjara Hills, Hyderabad 500 034.
Karvy Stock Broking Research is also available on: Bloomberg - KRVY <GO>, Thomson Publisher & Reuters.
