Shree Cement dips 4% post June quarter results; here's what brokerages say

Shares of Shree Cement slipped 4.70 per cent to Rs 21,335.40 on the BSE after the company's consolidated net profit dropped 13.5 per cent on a year-on-year (YoY) basis to Rs 330.35 crore for the June quarter of FY21 (Q1FY21). In comparison, the company had posted a profit of Rs 382 crore in the year-ago quarter.

The company’s revenue dipped 24 per cent YoY to Rs 2,480 crore from Rs 3,302 crore in Q1FY20. On the operational front, earnings before interest, tax, depreciation, and ammortisation (Ebitda) slipped 22.3 per cent to Rs 700 crore while Ebitda/tonne stood at Rs 1,422. Ebitda margin expanded to 30.1 per cent from 29.7 per cent.

“During the quarter ended 30th June, 2020, company's Indian operations were partially affected due to lockdown announced on account of Covid -19 pandemic by state and central government. The company has taken into account the possible impact of Covid-19 in preparation of the financial results,” the company said in an exchange filing.

"As the situation of pandemic is still continuing, the extent to which the same will impact Company's future financial results is currently uncertain and will depend on further developments," it said. 

At 10:27 AM, the stock was trading 3.88 per cent lower as compared to 0.8 per cent gain in the S&P BSE Sensex. 

Nirmal Bang maintained 'SELL' on the stock but raised its target price to Rs 18,659 from Rs 18,189 earlier.

"Shree Cements has reported decent set of numbers for 1QFY21. Ebitda at Rs 700 crore was 3.4 per cent higher than our estimate but various operating parameters were lower than expectations. Revenue at Rs 2,325 crore declined by 23 per cent YoY as volume declined by 18.6 per cent YoY whereas realization declined by 5.9 per cent YoY," the brokerage said.

"We believe that as the economy returns to normalcy from the Covid shock, the current pent-up demand from the rural segment will subside. Higher pricing is also likely to fall as supply constraints reduce and monsoon impact on demand kicks in. The stock is currently trading at elevated multiples of 22x FY22E EV/EBITDA and hence we would wait for a correction to review our rating on the stock," it said.

Kotak Securities said Shree Cement's Q1 performance was 'subpar' but that it was too early to extrapolate.

"SRCM’s 1QFY21 Ebitda was weaker than our estimates led by lower realizations. Volumes outperformed industry with 19 per cent yoy decline; however, realization was weaker than peers with a decline of 6 per cent yoy. Costs, too, saw a sequential increase versus a decline by most peers. We think it is too early to be concerned on SRCM’s ability to retain its cost and margin leadership position; nonetheless, margin of safety is low given premium valuations. Maintain SELL," it said.

Analysts at Motilal Oswal said,"While we keep our estimates largely unchanged, we see challenges related to near-term margins for SRCM. These pertain to the hike in cost, but decline in price in its operating regions. The balance sheet should, however, strengthen further on limited capex under execution. We maintain Neutral as the current valuation (16.8x FY22E EV/EBITDA) does not offer any upside.".

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