Value strategy paying off for Shree Cement, but stock may be fully priced

The standalone revenue of Shree Cement for Q4FY25 was ₹5,200 crore, while adjusted  Earnings before interest, taxes, depreciation, and amortization (Ebitda) stood at ₹1,410 crore, and profit after tax (PAT) was ₹580 crore. Revenue was up 3 per cent year-on-year (Y-o-Y), while Ebitda was up 6 per cent and PAT was down 13 per cent on a Y-o-Y basis.

 

Sales volumes surged 3 per cent Y-o-Y to 9.84 million tonnes (mt). Cement realisation grew 1 per cent Y-o-Y (up 5 per cent Q-o-Q) at ₹4,758 per tonnes. The operating profit margin (OPM) surged 80bp Y-o-Y to 27 per cent, and Ebitda per tonne increased 3 per cent Y-o-Y to ₹1,435. Depreciation increased 19 per cent Y-o-Y, and interest costs declined 36 per cent Y-o-Y.

 

In FY25, revenue was down 8 per cent, while Ebitda was down 12 per cent and PAT was down 51 per cent Y-o-Y. Volumes were flat Y-o-Y.

 

The Ebitda per tonne declined 12 per cent Y-o-Y to ₹1,080 despite the Q4 recovery. The operating cash flow (OCF) increased to ₹5,060 crore versus ₹3,300 crore in FY24, led by working capital release.

 

In Q4, the company focused on value, opting for better margins at the cost of market share. Shree Cement has also delayed setting up 3 mt per annum capacity in Rajasthan to FY2027, due to muted utilisation. However, it has plans to expand to 80+ mt per annum by FY2028, and it will be hard to sustain a ‘value over volume’ strategy in the long term.

 

The company’s Q4FY25 Ebitda was up 4.1 per cent Y-o-Y, and up 46 per cent quarter-on-quarter (q-o-q), while volumes at 9.8 mt increased by 3.3 per cent YoY (up 12.2 per cent q-o-q), which was lower than industry growth. Blended realisations, including power sales, increased 10.3 per cent q-o-q (flat Y-o-Y). Costs at ₹3,922 per tonne increased 4.6 per cent q-o-q (flat Y-o-Y), led by higher power and fuel costs (+12 per cent q-o-q) and one-offs in employee/other costs. However, blended fuel cost declined to ₹1.48/kcal in Q4FY25 (₹1.55/kcal in Q3FY25), and reported Ebitda of ₹1,404 per tonne increased q-o-q by ₹324 per tonne. 

 

This is the third successive quarter where Shree Cement has lost market share, due to its strategy. The company added 6.4 mtpa capacity in April 2025, taking the total capacity to 62.8 mtpa. Of the balance 9 mtpa capacity previously stated to commission in FY26, 3 mtpa capacity has been postponed. Cement capacity will reach 68.8 mtpa by end FY26.

 

Prices have seen positive trends across markets in April on a sequential basis, with the South outperforming.

 

On the cost front, pet coke prices have declined by about 12 per cent from recent highs but are still 3 per cent higher year-to-date in calendar year 2025. Net impact should aid margins in Q1FY26. Green power share stood at 60.2 per cent in Q4FY25 (55.1 per cent in Q3FY25), and the total green capacity stands at 582 Mw as of FY25 (480 Mw as of FY24). The company guided for a volume of 39 MT for FY26, with industry growth expected at 6.5 – 7.5 per cent.

 

Sales of premium products in Q4FY25 stood at 15.6 per cent of the trade sale volume vs 14.9 per cent in Q3FY25. 

 

This is in line with the value strategy and brand building and premiumisation over the past year is showing results.

 

But capacity utilisation continued to lag behind peers. 

 

Low capacity utilisation, lack of geographical distribution in the West and a disproportionate mix of split grinding units and integrated cement plants, and rising industry supply (given big capex plans from major cement players) are all drags on valuations. The stock has responded positively to the margin expansion but analyst opinion may be divided and cautious given high valuations and relative illiquidity.

 

According to Bloomberg, 14 of the 33 analysts polled after Q4 results are bullish on the stock, while 11 are neutral and the remaining 8 are bearish. Their average one-year target price is ₹ 30,647.58. The stock is up almost 4 per cent in the last two sessions and closed at ₹31,385.35 on Thursday on the BSE.