East proves best for Shree Cement in June quarter

Shree Cement’s Street-beating Q1 performance was led by its cement business. Though the company’s power segment reported a loss at the operating level, cement was the show-stopper, enabling Shree Cement post an Ebitda (earnings before interest, tax, depreciation and amortisation) of Rs 680 crore, which was reasonably ahead of Bloomberg consensus estimates of Rs 646 crore.

A better-than-expected recovery in cement realisations, led by price hikes since the start of April, helped the company beat cost pressures too. Per-tonne power and fuel costs increased 22 per cent year-on-year (y-o-y), while freight cost jumped 25 per cent y-o-y, because of rising coal and pet coke prices and a spike in fuel prices. But, the recovery of cement prices in eastern India, now averaging at Rs 291 per 50 kg in the June quarter (Q1) from Rs 283 seen in the March quarter (flat y-o-y), helped. The y-o-y boost to realisations was provided by northern India, with per bag cement prices at Rs 295, up significantly from Rs 278 seen in the year-ago quarter (flat sequentially). Overall, the company’s cement realisations improved five per cent y-o-y and nine per cent sequentially.

Cement volumes, at 5.92 million tonne (mt), grew 14.6 per cent y-o-y and met analysts’ estimates. Analysts at Motilal Oswal Securities had pegged the June quarter cement volumes at 5.9 mt, led by ramp-up of capacity in the eastern market.

Helped by growing volumes and realisations, revenues of the cement business at Rs 2,440.5 crore grew 20.9 per cent y-o-y and 9.2 per cent sequentially. Power revenues, at Rs  96 crore, however, declined 53.6 per cent y-o-y and 33.7 per cent sequentially. Thus, overall net sales at Rs 2,536 crore grew 15.4 per cent y-o-y and 6.6 per cent sequentially, but still came higher than estimates of Rs 2,513 crore.

While the power segment reported a loss of Rs 1.36 crore at the Ebitda level for Q1 against a profit of Rs 78.4 crore in year-ago period, and Rs 26 crore in previous quarter, Shree Cement’s overall Ebitda  grew 33 per cent sequentially (down seven per cent y-o-y). Net profit at Rs 440 crore also grew 44.5 per cent sequentially (down 13.3 per cent y-o-y) and came 16 per cent higher than consensus estimates of Rs 379.5 crore. Not surprisingly, the stock surged 8.9 per cent from the day’s low to close at Rs 18,638.55, a net gain of 6.62 per cent on Monday.

Binod Modi, in analyst at Reliance Securities, said improved volumes and higher realisations from eastern markets aided the quarterly performance, despite cost pressures. But, with the recent sharp price correction seen in the these markets, he does not expect the company to repeat the performance without softening of operational costs going forward in FY18.

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