Shree Cement (SRCM) Q1FY22 EBITDA was in-line with our/ consensus estimate. In Q1FY22, volume QoQ declined by only 5% versus peers where volume declined by double digit. But versus peers, EBITDA beat was not there due to cost inflation from fuel and freight.

Commenting on the result review, IDBI Capital Equity Research said, "Post result we have maintained our estimate with TP of Rs 25,618. We continue to value SCRM at 18x FY23E EV/EBITDA. But given there is a downside of 9% to our fair value, we have SELL rating on the stock.Catalyst for stock performance is capacity addition which will increase company’s capacity by +7% YoY to 46mt, lower costs and higher realization. SRCM valuation premium to UTCEM has narrowed to 35% (from the highs of 80%) vs. historical average of 40%."

Key highlights and investment rationale

Q1FY22 snapshot: SRCM Q1FY22 Revenue and EBITDA increased by 48% and 45% YoY. On operational front, volume increased by 38% YoY at 6.8mt. Realization increased by 6% QoQ led by strong cement price hike in the east and north. EBITDA/t stood at Rs 1,492 vs Rs 1,433 QoQ / Rs 1,421 YoY. Improvement in EBITDA/t was majorly led by price hike. As Cost inflation is building in, opex/t increased QoQ by 7% to Rs 3,587/t. PAT stood at Rs 6.6 billion up 77% YoY.

Cement prices holding up in Monsoon: Versus our earlier expectation of price cut in monsoon, cement prices are holding up in most of the regions in August 21. For SRCM we are modeling in ASP increase of 9%/4% and EBITDA/t of Rs 1,449/1,438 for CY21E/22E.

Capacity addition plans intact: SRCM post commissioning 3mtpa Cuttack GU in FY21, is planning to commission 3mtpa cement capacity in Pune by Sept-21. Post the commissioning, SCRM will have cement capacity of 46mtpa (up 7% YoY) by FY22E. In FY23E, 4.4mtpa Chhattisgarh clinker unit is planned to get commission and SRCM has long term plan of cement capacity of 80mtpa by FY30E (CAGR of 7% over FY21-30). 

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