Shree Cement’s December 2012 quarter performance was boosted by the power segment as cement demand and realisations remained subdued. However, moving forward the softness in the cement segment is likely to rebound for the company post the cold spell getting over and revival in demand. The power segment, too, is likely to continue its good performance in the second half (March and June 2013; year ends in June). Thus, most analysts see the stock prices rebounding to Rs 5,000 levels from Rs 4,514 currently, thereby continuing its upward trajectory which started in June 2012.
Cement: Muted show
The demand slumped with onset of festive season, elections in states like Gujarat and Himachal and then severe cold conditions in North India, have had a bearing on cement realisations during December 2012 quarter. The company is predominantly a North India player with some exposure to West and Central regions. Although the per bag cement prices in North, Central and West at Rs 281, Rs 277 and Rs 283 respectively were higher than the year ago quarter, the same were lower by 3-5% lower as compared to the September 2012 quarter. Thus, average realisations at Rs 3,733 a tonne fell 4.4% sequentially.
With demand remaining soft, the company’s cement and clinker volumes at 2.99 million tonnes (MT) also declined 1.7% sequentially and 0.7% over December 2011 quarter. While lower coal costs did offset some negatives due to surge in the transportation costs, EBIDTA per tonne (Rs 1,019) fell by 3.1% year-on-year and 14% sequentially.
Power-ful quarter
The power segment though surprised positively. Contributed almost 22% to revenues, it saw unit sales grow to 786 million compared to 307 million in September 2012 and 256 million in December 2011 quarters—Per unit realisation at Rs 3.97 though was lower than Rs 4.45 and Rs 4.30, respectively. Nevertheless, lower costs helped the business report a profit before interest and tax of Rs 99 crore against a loss of Rs 112 crore in year ago profit.
Helped by the power segment, Shree Cement’s total revenues could still grow 19.4% year-on-year and 8% sequentially. While overall operating margins declined, higher other income and lower depreciation costs helped. Hence, net profit was 267% higher on a year-on-year basis.
Improving outlook
Moving forward, the cement demand in North is likely to improve, while some price hikes have already been taken. Analysts at Citi in their 22nd January report observe that the cement prices across India are showing signs of an uptick after a correction in November/December 2012 (due to severe winter, production indiscipline, weak demand). Conversations with industry sources indicate prices have been/are being hiked this month on improving demand and wagon shortages (diversion to priority sectors). Prices in Delhi (North) are up by Rs 40 (16%) to Rs 285 per bag as the extreme cold winter subsides.
Rajesh Kumar Ravi at Karvy Stock Broking expects Shree Cement’s sales to improve during H2’FY13, which is the peak construction period, led by 9.5% year-on-year volume growth and 8.3% rise in net realisation. He is factoring in higher power sales of 1.4 billion units during H2’FY13 led by strong demand in northern states. Even Sanjeev Kumar Singh at Centrum Broking expects the power segment to continue its good performance.
Expansions boost
What’s more, the company expects to commission unit IX and unit X (two MT each) at Ras, Rajasthan by June 2013 and June 2014 respectively taking its clinker capacity to 13.5 MT. Corresponding grinding units are likely to come at Rajasthan and Bihar by June 2014. Thus, the cement capacity is likely to touch 18.5 MT by FY15. On the back of limited capacities being added in the North, analysts see good long-term visibility and prospects for the company.
