The Shree Cement stock slipped 0.8 per cent on the bourses to close at Rs 4,048.8 on Tuesday, even though the company posted better-than-expected revenues and profits for the quarter ended September. Revenues at Rs 1,324 crore and net profit at Rs 228 crore were higher than Bloomberg estimates of Rs 1,274 crore and Rs 200 crore and average analyst estimates of Rs 1,236 crore and Rs 187 crore, respectively. Analysts say the stock’s decline is in line with the market’s fall on Tuesday and largely a knee jerk reaction in response to the slight softness in numbers compared to the June quarter.
Meanwhile, the company’s cement business continues to do well on the back of strong demand and good realisations. While the management has not declared cement volume numbers, analysts peg the sales volumes at a little over three million tonnes (mt), better than 2.5 mt in the year-ago quarter. Realisations, too, have been better than last year. Average cement per bag prices in northern, central and western India (where the company has presence) at Rs 293, Rs 286 and Rs 297, were much higher than last year’s Rs 247, Rs 229 and Rs 241 a bag, respectively.
However, thanks to the monsoon, the September quarter performance was expectedly subdued as compared to the June quarter (sales volume of 3.4 mt). More, the June quarter was exceptionally outstanding in terms of realisations and sales volume for the industry.
| POWERFUL GROWTH | |||
| In Rs crore | Q1 FY13E | FY13E | FY14E |
| Net sales | 1,324 | 5,744 | 6,581 |
| % change y-o-y | 55.4 | 21.8 | 14.6 |
| Ebitda | 394 | 1,628 | 1,903 |
| Ebitda (%) | 29.7 | 28.3 | 28.9 |
| Net profit | 228 | 823 | 985 |
| % change y-o-y | 492.7 | 63.5 | 19.6 |
| EPS (Rs) | - | 230.5 | 285.5 |
| PE (x) | - | 17.6 | 14.2 |
| Company now follows July-June financial Year, hence, Sept is the first quarter of the current fiscal E: Estimates Consolidated financials Source: CapitaLine Plus, Bloomberg | |||
For the company’s power segment, which accounts for about a fifth of annual revenues and profits, too, September is a subdued quarter compared to the June quarter. Hence, per unit sale price of power at Rs 4.32 was lower than Rs 4.98 in the previous quarter. Likewise, units sold also came lower at 360 million compared to 390 million units in June quarter.
However, the current quarter onwards, the performance is likely to improve as demand remains strong. Even in the September quarter, the company has seen cement utilisation levels of 90 per cent compared to 70 per cent in the year-ago quarter. More, the region where Shree Cement operates is already seeing an uptick in prices. Analysts at Edelweiss Securities, in their recent report on cement prices, observe that the highest price recovery of around 4.5 per cent in October (over the month of September) has been observed in the central region.
While the central region had seen cement prices of Rs 276 a bag in September, north and west had seen per bag prices at around Rs 293 and Rs 297, respectively. The analyst further adds that price rises of Rs 5-15 a bag are expected in the coming weeks across regions. Thus, better realisations are likely to offset any impact of rising freight costs and boost profitability.
Analysts at Emkay Global further observe that for the cement industry as a whole the impact of increase in freight costs is to be negated by softening in international coal prices and favourable movement of the rupee. In this backdrop, the prospects for Shree Cement remain good. Most analysts are positive on the stock and expect an upward revision in the target prices from Rs 4,200 currently.
