Beating the slowdown: Capacity addition helps Shree Cement

It reported strong performance in December quarter despite majority of its capacities being situated in North India where demand and prices remained soft throughout the year

Don't want to miss the best from Business Standard?

Cement producers in India have faced a challenging 2015-16 with demand and realisations remaining under pressure. Shree Cement is, however, expected to buck the trend with strong sales growth in the March quarter and for the year.

The company had reported a strong performance in the December quarter despite the majority of its capacity being located in north India where demand and prices remained soft throughout the year. The average cement price per 50-kg bag in north India fell to Rs 244 against Rs 275-344 in other parts of of the country.  

Read more from our special coverage on "SHREE CEMENT"

• Shree Cement readies Rs 6,000 cr for expansion

Shree Cement’s sales at 4.7 million tonnes in the December quarter managed to grow 23.1 per cent, year on year, and 12.1 per cent, sequentially. Analysts said sales would grow by 17 per cent in the March quarter.

The growth can be attributed to capacity additions over the years. This and its marketing and distribution network helped Shree Cement gain market share regularly. Shree Cement’s capacity, has grown from 12 million tonnes in 2009-10 to 25.6 million tonnes now as it became the fourth largest manufacturer in the country.

Capacity addition plays a vital role in driving growth for cement manufacturers. UltraTech, the Aditya Birla group company, has been growing its volumes by capacity expansion through organic and inorganic routes. Ambuja Cement and ACC, the Holcim group companies, are facing slower growth because of slow capacity addition.

Analysts said rising volumes had helped Shree Cement ease falling realisations, and declining raw material costs had helped it sustain profitability. During the December quarter, Shree Cement's earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne was Rs 800, slightly lower than Rs 900 reported by UltraTech.  ACC and Ambuja had Ebitda per tonne of Rs 400 and Rs 600, respectively.

In the coming years, Shree Cement is expected to add more capacity. The company will add an additional 3 million tonne capacity in Chhattisgarh. Shree Cement already has land and limestone mines in Karnataka for capacity of up to 4.5 million tonnes.

The first plant in Karnataka is expected to be commissioned by December 2018 and analysts at Nomura said given Shree Cement’s record the plant would be ready before schedule. Since the plant is in the Gulbarga region of north Karnataka, it will allow Shree Cement to cater to the western market along with south India. With this expansion, the total capacity of the company is expected to reach 33.6 million tonnes.

For the quarter ending March this year, analysts at Reliance Securities expect Shree Cement to report sales of 5.3 million tonnes, growing 28.8 per cent.

The revenue growth will be 29 per cent.  Analysts at brokerage firm Ambit estimate sales and EBITDA to grow at compounded rates of 16 and 42 per cent, respectively, over the period 2014-15 till 2017-18.