 "Power boost for Shree Cement")
Shree Cement’s results for the September quarter surprised the Street as net profits were lower than expected. However, a closer look shows this is due to a sharp rise in depreciation costs after capacity expansion, as cement realisations could not keep pace in the monsoon-affected first quarter. The company follows a July-June financial year.
The stock was volatile in trading on Monday, correcting almost five per cent after the results announcement, only to recover and hit a new all-time high of Rs 9,292. It ended the day up 3.5 per cent at Rs 9,252.85.
Prospects firm, valuations stretched
Analysts remain positive on the company’s prospects. Rising capacities and completion of acquisition of JP Associates’ 1.5-million tonnes per annum (mtpa) grinding unit bodes well. Annual cement capacity has touched 17.5 mt with its unit in Bihar also starting functioning. Two mtpa integrated units in Chhattisgarh and another one in U.P will take its total capacity to 21 mtpa in FY16.
This will also provide geographical diversification, partly de-risk the business model and boost growth. However, after a sharp run-up on the bourse (almost 113 per cent year-to-date), analysts feel the valuations are on the higher side.
The stock is trading at a replacement cost of $216 a tonne on FY16 capacities, one of the highest in the industry. One should wait for demand to actually pick up on ground and the benefits to accrue to companies. Hence, many analysts have 'accumulate' or 'hold' ratings on the stock. The consensus target price of Rs 8,762 from analysts polled by Bloomberg since October also indicates there is no upside from these levels.
Cement prices in North India declined slightly in the low single digits, despite a strong uptick seen in the southern part of the country. Regional entities such as Shree, with plants in North India, felt the heat. Cement volumes at 3.796 mt during the quarter grew well over the year-ago quarter number of 3.26 mt, helping cement segments revenues to Rs 1,417 crore, up 30.4 per cent.
However, lower realisations, cost pressure and higher depreciation impacted segment profits. While freight costs grew 8.1 per cent over the year, overall power & fuel costs jumped 37.6 per cent and depreciation almost doubled from Rs 113.9 crore in the September 2013 quarter to 222.7 crore as against the estimate of Rs 177.5 crore.
All this led the cement segment, that contributes 80 per cent to overall revenue, see its Ebit (earnings before interest and tax) decline 44.1 per cent over the year to Rs 24.2 crore.
Power show
The power segment saved the day. Profits at the Ebit level here, at Rs 92.4 crore, contributed a little over three-fourth of the overall Rs 121 crore Ebit. The company sold 487.7 million units in the quarter, 17 per cent higher than the 417 mn sold in the year-ago quarter. Realisation per unit at Rs 3.92 was better sequentially as well on the year-ago number of Rs 3.85 a unit. This, coupled with higher volumes, boosted revenue to Rs 1,608 crore.
The top line number was higher than the estimate of Rs 1,265 crore. Earnings before interest, tax, depreciation and amortisation at Rs 340.2 crore, though higher than the year-ago quarter’s Rs 249.4 crore, was lower than the Street estimate of Rs 425.4 crore.
The stock was volatile in trading on Monday, correcting almost five per cent after the results announcement, only to recover and hit a new all-time high of Rs 9,292. It ended the day up 3.5 per cent at Rs 9,252.85.
Prospects firm, valuations stretched
Analysts remain positive on the company’s prospects. Rising capacities and completion of acquisition of JP Associates’ 1.5-million tonnes per annum (mtpa) grinding unit bodes well. Annual cement capacity has touched 17.5 mt with its unit in Bihar also starting functioning. Two mtpa integrated units in Chhattisgarh and another one in U.P will take its total capacity to 21 mtpa in FY16.
This will also provide geographical diversification, partly de-risk the business model and boost growth. However, after a sharp run-up on the bourse (almost 113 per cent year-to-date), analysts feel the valuations are on the higher side.
The stock is trading at a replacement cost of $216 a tonne on FY16 capacities, one of the highest in the industry. One should wait for demand to actually pick up on ground and the benefits to accrue to companies. Hence, many analysts have 'accumulate' or 'hold' ratings on the stock. The consensus target price of Rs 8,762 from analysts polled by Bloomberg since October also indicates there is no upside from these levels.
Cement prices in North India declined slightly in the low single digits, despite a strong uptick seen in the southern part of the country. Regional entities such as Shree, with plants in North India, felt the heat. Cement volumes at 3.796 mt during the quarter grew well over the year-ago quarter number of 3.26 mt, helping cement segments revenues to Rs 1,417 crore, up 30.4 per cent.
However, lower realisations, cost pressure and higher depreciation impacted segment profits. While freight costs grew 8.1 per cent over the year, overall power & fuel costs jumped 37.6 per cent and depreciation almost doubled from Rs 113.9 crore in the September 2013 quarter to 222.7 crore as against the estimate of Rs 177.5 crore.
All this led the cement segment, that contributes 80 per cent to overall revenue, see its Ebit (earnings before interest and tax) decline 44.1 per cent over the year to Rs 24.2 crore.
Power show
The power segment saved the day. Profits at the Ebit level here, at Rs 92.4 crore, contributed a little over three-fourth of the overall Rs 121 crore Ebit. The company sold 487.7 million units in the quarter, 17 per cent higher than the 417 mn sold in the year-ago quarter. Realisation per unit at Rs 3.92 was better sequentially as well on the year-ago number of Rs 3.85 a unit. This, coupled with higher volumes, boosted revenue to Rs 1,608 crore.
The top line number was higher than the estimate of Rs 1,265 crore. Earnings before interest, tax, depreciation and amortisation at Rs 340.2 crore, though higher than the year-ago quarter’s Rs 249.4 crore, was lower than the Street estimate of Rs 425.4 crore.