Shree Cement rating – Hold: Results were in line with expectations

Certainly, as evident in FY21, Shree reported quantity progress of 10% vs a decline for {industry} whereas its Ebitda/tonne progress of 1% y-o-y was subpar.

Shree Cement reported in-line outcomes for Q4FY21 with quantity progress of 19% y-o-y, partly helped by the benign base the earlier yr. Business friends which have reported their This autumn outcomes to this point have seen quantity progress of c25% y-o-y. Shree Cement’s Ebitda margin declined by 300bps q-o-q to c30%, a tad decrease than the consensus forecast of c31%. Making an allowance for the better-than-expected sequential rise in realisations – up 4% q-o-q — the margin efficiency appeared notably weak, in our view.

The majority of the margin miss was on account of record-high staffing and different bills. The staffing prices have been 28% increased than its earlier quarterly peak in Q1FY20 whereas different bills have been 24% increased vs the height in Q3FY21. Thus, it didn’t profit from the robust working leverage and reported the weakest Q4FY21 efficiency vs friends.

Margin stress more likely to proceed: Admittedly whereas among the fastened prices may even see corrections within the close to time period submit the latest COVID-19 wave, we count on the margin pattern for Shree to stay comparatively subdued in contrast with friends for FY22e. Our view is primarily pushed by firm’s renewed give attention to gaining market share and sustaining {industry} main progress. We count on realisation progress for Shree to be lower than 2% vs 3% for {industry} in FY22e. Certainly, as evident in FY21, Shree reported quantity progress of 10% vs a decline for {industry} whereas its Ebitda/tonne progress of 1% y-o-y was subpar.

We forecast a CAGR of 12% for volumes for Shree between FY21e and FY24e in contrast with 9% for the {industry}. Worth will increase are unlikely to offset increased enter costs, which have seen additional will increase in latest months. Consequently, we now construct in decrease margins, leading to a c3% lower to our absolute Ebitda estimates for FY22e and FY23e. For FY21e-24e, we estimate a CAGR of 14% for absolute Ebitda, in keeping with these of different giant friends below protection, largely pushed by robust quantity progress.

Retain Maintain and elevate TP to Rs 27,500 from Rs 27,200: The resurgence of COVID-19 stays a key threat for the close to time period. Our interactions with sellers counsel some moderation in gross sales. Nevertheless, cement demand, in our view, is commonly sticky and may see a fast restoration because the macro setting and affect of the pandemic normalise over the yr. We view Shree Cement as the very best cement franchise given its higher-than-industry progress, lowest working prices and powerful return ratios vs friends. Nevertheless, it’s buying and selling at 20x 1-year ahead Ebitda, representing a 20% premium to its historic common, implying restricted upside.