Shree Cement: PAT disappoints in December quarter

Expansions boost volumes, but lead to higher depreciation costs

A lower-than-expected net profit by Shree Cement for the December quarter saw its stock fall three per cent to Rs 10,375 on Tuesday, even as operating profits were better than estimates. While the newly started capacities in Uttar Pradesh might not have achieved desired utilisation levels, depreciation costs of cement segment increased 60 per cent year-on-year (y-o-y) and 38 per cent sequentially to Rs 263 crore. But, it boosted sales volumes that jumped 22 per cent y-o-y to 4.69 million tonnes.

Operationally, Ebitda per tonne of cement business came at Rs 783, compared to Rs 716 and Rs 798 in the year-ago and previous quarter, respectively, aided by lower fuel, freight and other costs. This is impressive given the soft realisations which, barring south India, slipped, both sequentially and y-o-y. Being a regional player, the company does not have any exposure to southern India and hence the impact on profitability. Average realisations were down 0.5 per cent y-o-y and 3.6 per cent sequentially to Rs 3,510 a tonne. Like cement, power segment (10 per cent of revenues) also got some boost from lower fuel prices and, hence, the segment’s Ebit at Rs 150 crore was up 70 per cent y-o-y and 39 per cent sequentially.

Overall, both net sales at Rs 1,827 crore and Ebitda at Rs 426 crore were higher than Bloomberg consensus estimates of Rs 1,800 crore and Rs 416 crore, respectively. Higher depreciation saw net profit come at Rs 103 crore (up 9.8 per cent y-o-y), lower than estimates of Rs 131 crore.

The high expectations from Shree Cement and its superior track-record have led the stock to trade at replacement costs of $201 a tonne on FY17 capacities, higher than $174 a tonne for India’s largest player UltraTech. So, any disappointment is bound to see corrections. The company is doing well and its outlook is strong, but rich valuations are a concern. Investors can, thus, utilise dips for accumulating the stock for longer term gains.