Cement

November 11, 2014

Shree Cement

India Research

Bloomberg: SRCM IN
Reuters: SHCM.BO

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
rajesh.ravi@karvy.com

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@karvy.com
Tel: +91-22-6184 4300
Disclosures Appendix
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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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companies from time to time. Every employee of Karvy and its associate companies are required to disclose their individual stock
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.