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Shree Cement
Performance highlights
NEUTRAL
CMP Target Price
Investment Period
% Chg qoq 5.8 28.7 586bp 206.3 1QFY2012 1,034 259 25.1 55 % Chg yoy 40.8 85.3 792bp 537.3
`3,493 Cement 12,168 (308) 0.8 3,575/1,571 4,102 10 17,632 5,335 SHCM.BO SRCM@IN
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
Shree Cement (SRCM) posted a strong performance on the bottom-line front (up 537% yoy) in 5QFY2012 which was well ahead of both, our as well as consensus estimates. The stellar performance was on account of a 25% yoy growth in cement volumes, coupled with an 11.6% yoy growth in cement realization. The bottom-line was also boosted on account of a 15.7% yoy reduction in the companys per tonne freight cost despite the increase in rail freight fare and higher road freight charges (due to increase in diesel costs). We remain Neutral on the stock. OPM at 33%, up 792bp yoy: SRCMs cement business posted EBITDA/tonne of `1,320 for the quarter (up 39% on a y-o-y basis). The sharp improvement in EBITDA/tonne was aided by higher realization and a 15.7% yoy decline in freight costs. Merchant power volumes rose by 63.6% on a y-o-y basis to 390MUs, aided by higher generation capacity. However, on a sequential basis merchant power volumes were down by 10%. EBITDA/unit of merchant power sold stood at `0.9 vs `0.6 in 4QFY2012. Thus, the companys OPM stood at 33%, up 792bp on a y-o-y basis. Apart from a strong operational performance, the bottom-line was also boosted by lower depreciation which stood at `82cr, down 48.8% yoy (down 65.1% qoq). Other income at `32cr too was higher by 103% on a y-o-y basis. Outlook and valuation: At the current market price, SRCM's cement business is trading at EV/tonne of US$125 on current capacity (US$67 on FY2014E capacity), which we believe is fair. Hence, we maintain our Neutral recommendation on the stock.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 64.8 5.3 8.4 21.5
3m 7.4
1yr 11.2
3yr 10.7
Key financials
Y/E March (` cr) Net Sales % chg Net Profit % chg FDEPS(`) OPM (%) P/E(x) P/BV(x) RoE(%) RoCE(%) EV/Sales (x) FY2011 3,454 (5.2) 210 (69.0) 74.1 25.6 47.1 6.1 13.5 5.3 3.3 167 FY2012E* 5,898 70.8 618 194.7 180.9 27.9 19.3 4.5 26.7 19.3 1.7 125 FY2013E 5,767 (2.2) 756 22.3 216.9 28.4 16.1 3.6 24.7 23.0 1.5 93 FY2014E 6,337 9.9 882 16.8 253.3 26.9 13.8 2.9 23.4 21.7 1.2 67
EV/tonne
V.Srinivasan
+91 22 39357800 Ext. 6831 v.srinivasan@angelbroking.com
EV/EBITDA 12.8 6.0 5.4 4.5 Source: Company, Angel Research; Note:* The company has changed its accounting period to June-end, hence FY2012 consists of 15 months.
5QFY2012 1,456 136 9.3 341 23.4 75 5.1 236 16.2 188 12.9 976 480 33.0 48 82 32 383 383 32 8.4 351 24.1
4QFY2012 % Chg qoq 1,376 147 10.7 361 26.2 61 4.2 246 16.9 189 13.0 1,003 373 27.1 41 235 77 175 3 172 58 33.5 114 8.3 206.3 122.3 (44.5) (2.7) 28.7 586bp 16.7 (65.1) (58.5) 118.7 (0.2) (4.2) 23.6 (5.4) 5.8 (7.4)
1QFY2012 % Chg yoy 1,019 129 12.7 273 26.8 61 4.2 223 15.3 89 6.1 775 244 23.9 32 160 16 68 8 60 4 7.2 55 5.4 532.3 26.0 96.9 904bp 50.5 (48.8) 103.0 462.1 (100.0) 540.0 638.8 112.6 5.6 22.3 25.2 42.9 5.3
Performance highlights
Total operating income up 40.8% yoy, led by strong growth in cement business
During 5QFY2012, SRCMs total operating income grew by 40.8% yoy to `1,456cr, primarily on account of a 39.8% yoy increase in revenues of the cement business. The stellar performance of the cement business was lead by a robust 25% yoy growth in cement volumes (vs industry growth rate of ~9%) and a healthy 11.6% yoy growth in realization. Revenue of the power business also grew by 45.3% yoy to `170cr aided by a 63.6% increase in sale volumes to 390MUs. However, volumes were down by 9.5% on a sequential basis. Power volumes growth was aided by 300MW of new capacity commissioned during the year. Higher realization coupled with lower freight and power and fuel costs results in 39% yoy increase in EBITDA/tonne On the operating front, net raw-material cost per tonne of cement fell by 16% yoy to `404/tonne. Freight cost/per tonne fell by 15.7% yoy. Power and fuel cost per tonne too was down by 9.7% yoy due to lower pet coke prices. Higher realization coupled with fall in per tonne freight and power and fuel costs resulted in OPM expanding by 792bp yoy to 33% (up 586bp qoq). The operating profit per tonne of cement increased to `1,320 (up 39.6% yoy).
4QFY12
3,427 423 579 709 544 1,000
1QFY12
3,409 480 686 829 329 992
chg(%) yoy
11.6 (16.0) (9.7) (15.7) 69.7 33.1
chg(%) qoq
11.0 (4.6) 7.1 (1.4) 2.7 32.0
Investment rationale
One of the lowest-cost cement producers: SRCM is one of the lowest-cost cement producers in north India, primarily because of its captive power plant and lesser power consumption per tonne of cement (one of the lowest in the industry due to higher proportion of portland pozzolana cement PPC [~80%] in overall sales volumes) and lower freight cost as its grinding units are close to demand centers. Growth to be driven by capacity addition: SRCM has recently added 3.3mtpa of cement capacity by commissioning new grinding plants and by de-bottlenecking. The company has also commissioned new merchant power capacity of 300MW in two phases in October 2011 and January 2012. We expect these capacity additions to drive its revenue growth going ahead. Outlook and valuation: At the current market price, SRCM's cement business is trading at an EV/tonne of US$125 on current capacity (US$67 on FY2014E capacity), which we believe is fair. Hence, we maintain our Neutral recommendation on the stock.
129 162 59 45 65
125
Neutral
1,732
2.7
16.1
9.9
18.3
160
Source: Company, Angel Research; Note: *Y/E December; # Y/E June; ^ Computed on TTM basis
Company background
Shree Cements is a leading cement company in north India, with a current total capacity of 13.5mtpa spread across Rajasthan (11.7mtpa) and Uttarakhand (1.8mtpa). The company has ambitiously grown its cement capacity by five times in the past six years. In FY2011 alone, the company added 3.3mtpa of cement capacity and 1mtpa of clinker capacity. Also, the company has ventured into the power generation business and is expected to have 560MWof capacity by FY2012end post the commissioning of the new 300MW capacity.
Note: FY2012 Consists of 15 months; Some of the figures from FY2012 are reclassified and hence not comparable with previous year numbers
Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Other Long term liab Long term provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Long term loans and adv Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,466 509 744 213 721 745 2,696 1,582 416 725 441 967 615 3,927 2,256 1,629 627 479 845 2,951 2,199 752 967 1,592 4,042 2,875 1,167 729 1,196 308 1,467 499 456 512 892 575 3,976 5,188 3,748 1,440 178 2,535 205 1,545 459 401 684 1,889 (344) 4,014 5,488 4,425 1,063 278 2,835 205 1,860 722 454 684 1,877 (17) 4,365 5,738 5,132 606 478 3,235 205 2,392 1,094 524 774 2,092 300 4,824 2,696 3,927 35 1,175 1,210 1,496 (10) 35 1,798 1,833 2,106 (12) 35 1,951 1,986 1,689 (72) 357 16 3,976 35 2,699 2,734 963 (70) 370 17 4,014 35 3,349 3,384 663 (70) 370 17 4,365 35 4,109 4,143 363 (70) 370 17 4,824 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E
Note: FY2012 consists of 15 months; Some of the figures from FY2012 are reclassified and hence not comparable with previous year numbers
(530) (1,183)
(700) (1,802)
Note: FY2012 consists of 15 months; some of the figures from FY2011 onwards are reclassified and hence not comparable with previous year numbers
Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.1 0.2 9.3 0.1 0.1 6.7 (0.0) (0.0) 1.2 (0.7) (1.2) 3.3 (0.9) (1.8) 7.8 (1.0) (2.3) 11.3 1.2 22 7 124 25 1.4 26 7 140 22 1.0 40 10 132 15 1.3 28 9 119 (22) 1.1 32 12 166 (49) 1.1 31 11 156 (44) 30.6 81.7 65.0 26.2 95.7 45.2 5.3 16.7 13.5 19.3 64.5 26.7 23.0 140.3 24.7 21.7 363.7 23.4 26.4 79.9 1.5 31.1 4.4 0.9 55.9 23.8 77.9 1.3 23.7 5.6 0.9 40.9 6.1 190.0 1.0 11.4 17.6 0.8 6.4 13.1 89.9 1.7 19.7 16.0 0.4 21.4 16.7 80.0 1.6 21.4 12.2 0.2 23.4 15.7 85.0 1.7 22.9 14.5 0.1 24.0 165.9 165.9 224.8 11.7 333.2 194.0 194.0 357.8 15.2 526.2 74.1 74.1 254.2 16.3 570.1 180.9 180.9 428.0 24.7 784.8 216.9 216.9 411.1 30.3 971.4 253.3 253.3 456.3 35.3 1,189.4 21.1 15.5 10.5 0.3 4.4 12.8 4.4 18.0 9.8 6.6 0.4 3.1 7.8 2.9 47.1 13.7 6.1 0.5 3.3 12.8 2.9 19.3 8.2 4.5 0.7 1.7 6.0 2.5 16.1 8.5 3.6 0.9 1.5 5.4 2.0 13.8 7.7 2.9 1.0 1.2 4.5 1.6 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Shree Cement No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):