Power boost for Shree Cement

Good show by power segment, better cement realisations boost June quarter numbers

Kolkata-based Shree Cement showcased better-than-expected realisations in the cement segment for the June quarter. The company’s power segment, too, saw higher volumes and improved realisations. Its sales at Rs 1,719 crore beat the Bloomberg consensus estimate of Rs 1,635 crore. Shree Cement’s operating profit of Rs 357 crore was better than the anticipated Rs 312 crore. Its profit at Rs 104 crore was 42 per cent ahead of Bloomberg consensus estimate of Rs 73 crore. So, a 1.68 per cent up move to Rs 11,641 levels in trade on Wednesday did not come as a surprise.

Shree saw cement volumes including clinker grow 20 per cent year-on-year (y-o-y) to 4.47 million tonnes. Although volumes were led by expansions, the per-tonne average realisation at Rs 3,390 was better than the anticipated Rs 3,360. The realisations, nevertheless, were lower than Rs 3,556 and Rs 4,009 seen in March 2015 and June 2014 quarters, respectively. Helped by strong volume growth, cement segment revenues at Rs 1,515 crore grew 1.7 per cent y-o-y and 3.6 per cent, on a sequential basis.

The power segment (21 per cent of revenues) boosted overall numbers as merchant power units at 572 million were much higher than 498 million in the June 2014 quarter and 334 million in the March 2015 quarter. The per-unit realisation improved to Rs 3.70 compared to Rs 3.36 in the year-ago quarter and Rs 3.39 in the last quarter. Hence, power revenues at Rs 209 crore grew 25 per cent, y-o-y, and 85 per cent, sequentially. Profitability of the segment improved substantially, which was helped by lower fuel costs as earnings before interest and taxes at Rs 184.54 crore grew 55.6 per cent sequentially and 176 per cent y-o-y.

While volumes for the cement segment were strong, driven by expansions, realisations were softer. The company is gaining thanks to its Rajasthan expansion and benefits from the 2.6 million tonnes a year Raigarh plant.

The cost-efficient cement producer will benefit from increasing volumes and is well poised to reap benefits of an uptick in cement demand expected post monsoon or at the end of the September 2015 quarter. While most analysts are positive for now, they have a ‘hold’ or ‘neutral’ rating on the stock. The stock is trading at replacement costs of close to $243 a tonne on its FY17 capacities and is at much higher premiums to peers such as Ambuja ($178 a tonne) and even all-India players such as UltraTech ($215 a tonne).