09 may 2020 results review 4qfy20 shree cement cement - 4qfy20 - hsie... · 09 may 2020 results...

09 May 2020 Results Review 4QFY20

Shree Cement

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Strong show; Valuations remain expensive

We maintain Reduce rating on Shree Cement with TP of Rs 17,900, as

valuations remain expensive. We expect Shree’s FY21E vol to decline 19% in

FY21, as Covid-led lockdown will drive ~45% YoY sales decline in 1H.

However, falling energy cost and healthy pricing in the north/central markets

should drive margin expansion thus moderating FY21 EBITDA decline. In

4QFY20, while Shree’s vol fell 5% YoY, strong pricing and falling energy costs

bolstered unitary EBITDA to Rs 1,562/MT (industry best!).

Robust 4QFY20 performance: While Covid-19 led shutdown late-Mar

onwards drove 5% YoY cement volume decline, robust pricing in the

north/central regions kept NSR buoyed at +9% YoY. This along with slump

in its merchant power sales drove 2% revenue decline. Further, falling

energy costs drove 3% YoY unitary opex fall. These more than offset weak

demand and Shree’s unitary EBITDA surged 42% YoY to its all time high of

Rs 1,562/MT which is also the industry best. Thus, despite nil EBITDA

contribution from merchant power, total EBITDA/PAT grew 27/83% YoY.

FY20 performance overview: Shree’s cement vol declined (4% YoY) for the

first time in past 18 years, and utilisation dropped to a two-decade low of

~60%. Despite this, robust pricing in the north/central regions, increased

trade focus (~80% in FY20), benefits of lower energy cost and lean overheads

bolstered its unitary EBITDA in FY20 to Rs 1,458/MT (+46% YoY) – its best

ever and highest in the industry. This drove 33/26% EBITDA/PAT growth.

Aided by strong profit and working capital reduction, OCF jumped 82%

YoY to Rs 37.5bn. Lower capex and QIP proceeds further aided a net cash

balance of Rs 41bn vs net debt of Rs 2bn YoY.

Capex and earnings outlook: Shree’s SGU expansions in Odisha and Pune

(3mnMT each) are expected to be commissioned in 2HFY21 (slightly delayed

due to Covid). We expect sales volume to fall 19% in FY21 (driven by sharp

~45% YoY fall in 1H), and 19% YoY recovery in FY22E. Stable pricing and

low energy cost, however should boost unitary EBITDA to ~Rs1,560/MT

during FY21/22E and moderate FY21 EBITDA decline. We have marginally

trimmed EBITDA estimates for FY21/22 by 3/1% respectively.

Maintain REDUCE: We retain Reduce rating on Shree Cement with SOTP

based TP of Rs 17,900 (SOTP based: Cement/power businesses at 15/5x

FY22E EBITDA, and its UAE subsidiary at 1x BV). Despite ascribing

premium valuation, for its superior cost leadership and profitability margin

and strong capex management, the stock price offers no upside.

YE Mar (Rs mn) 4Q

FY20

42Q

FY19

YoY

(%)

3Q

FY19

QoQ

(%) FY19 FY20 FY21E FY22E

Net Sales 32,175 32,849 (2.0) 28,483 13.0 117,221 119,040 98,979 117,604

EBITDA 10,789 8,478 27.3 8,493 27.0 27,694 36,745 31,528 38,444

APAT 5,882 3,209 83.3 3,100 89.8 12,457 15,702 10,497 13,646

AEPS (Rs) 163.0 92.1 76.9 85.9 89.8 357.6 435.2 290.9 378.2

EV /EBITDA (x)

24.4 17.2 20.0 16.4

EV/MT (Rs bn)

16.24 14.55 14.18 13.02

P/E (x)

54.1 42.9 64.2 49.4

RoE (%)

13.5 13.9 7.9 9.7

Source: Company, HSIE Research, Standalone Financials

REDUCE

CMP (as on 8 May 2020) Rs 18,733

Target Price Rs 17,900

NIFTY 9,252

KEY

CHANGES OLD NEW

Rating Reduce Reduce

Price Target Rs 17,900 Rs 17,900

EBITDA % FY21E FY22E

(3.3) (0.5)

KEY STOCK DATA

Bloomberg code SRCM IN

No. of Shares (mn) 36

MCap (Rs bn) / ($ mn) 676/8,945

6m avg traded value (Rs mn) 937

52 Week high / low Rs25,313/15,410

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) (24.7) (6.1) (5.4)

Relative (%) (1.6) 15.4 10.9

SHAREHOLDING PATTERN (%)

Dec-19 Mar-20

Promoters 62.55 62.55

FIs & Local MFs 9.90 11.22

FPIs 13.20 11.90

Public & Others 14.35 14.33

Pledged Shares 0.0 0.0

Source : BSE

Rajesh Ravi

[email protected]

+91-22-6171-7352

Saurabh Dugar

[email protected]

+91-22-6171-7353

Page | 2

Shree Cement: Results Review 4QFY20

Quarterly Standalone Financial Snapshot

Particulars (Rs mn) 4QFY20 4QFY19 YoY (%) 3QFY20 QoQ (%)

Net Sales 32,175 32,849 (2.0) 28,483 13.0

Raw Materials 1,816 2,501 (27.4) 2,503 (27.4)

Power and Fuel 6,217 7,633 (18.6) 4,793 29.7

Employee 1,691 1,705 (0.8) 1,856 (8.9)

Transport 7,144 7,747 (7.8) 6,438 11.0

Other Exp 4,519 4,786 (5.6) 4,400 2.7

EBITDA 10,789 8,478 27.3 8,493 27.0

EBITDA margin (%) 33.5 25.8 29.8

Depreciation 4,362 4,206 3.7 4,322 0.9

EBIT 6,426 4,272 50.4 4,171 54.1

Other Income (Including EO Items) 978 451 116.9 649 50.6

Interest Cost 726 697 4.2 741 (2.1)

PBT - Reported 6,678 4,026 65.9 4,079 63.7

Tax 797 817 (2.5) 980 (18.7)

Tax rate 11.9 20.3 24.0

RPAT 5,882 3,209 83.3 3,100 89.8

EO (Loss) / Profit (Net Of Tax) - - -

APAT 5,882 3,209 83.3 3,100 89.8

Adj PAT margin 18.3 9.8 10.9

Source: Company, HSIE Research

Quarterly Performance Analysis: Cement

Particulars 4QFY20 4QFY19 YoY (%) 3QFY20 QoQ (%)

Sales vol (mn MT) 6.9 7.3 (5.4) 6.2 10.6

Rs/MT trend

NSR 4,600 4,225 8.9 4,512 2.0

Raw materials 263 343 (23.2) 401 (34.4)

Power & fuel 842 830 1.4 713 18.0

Freight 1,034 1,061 (2.5) 1,031 0.3

Employee 245 234 4.8 297 (17.6)

Other Exp 654 656 (0.2) 705 (7.1)

Opex 3,038 3,123 (2.7) 3,146 (3.4)

EBITDA 1,562 1,102 41.7 1,365 14.4


Cement sales vol fell 5%

YoY driven by sales loss in

March end.

However, NSR firmed up

9% YoY owing to strong

pricing across

north/central regions.

Trade sales continued to

comprise ~80% of total

sales volume throughout

FY20.

Petcoke prices fell 9/19%

QoQ/YoY thus reducing

unitary opex. Thus, despite

cement vol decline and

slump in merchant power

sales, EBITDA soared 27%

YoY in 4Q.

Treasury gains on the QIP

proceeds doubled the Other

Income. Lower tax rate

YoY further propelled PAT

spike up.

Page | 3


Operational Trends and Assumptions – Cement business

Particulars FY17 FY18 FY19 FY20 FY21E FY22E

Cement Cap (mn MT) 29.2 34.8 37.8 43.3 46.3 47.3

Sales Volume (mn MT) 20.6 22.5 25.9 24.9 20.2 24.2

YoY change (%) 8.4 9.5 14.8 (3.6) (18.8) 19.3

Utilisation (%) 70.5 64.8 68.4 57.6 43.7 51.1

(Rs/ MT trend)

NSR 3,897 4,172 4,223 4,615 4,699 4,730

YoY change (%) 12.5 7.0 1.2 9.3 1.8 0.7

Raw material cost 305 342 334 308 300 309

Power and fuel cost 501 693 822 797 760 768

Transport cost (in + out) 910 1,120 1,116 1,045 1,000 1,015

Employee cost 261 261 262 293 350 330

Other expenses 777 682 688 713 748 727

Total Opex 2,754 3,099 3,223 3,157 3,158 3,149

YoY change (%) 6.0 12.5 4.0 (2.0) 0.0 (0.3)

EBITDA per MT 1,144 1,073 1,000 1,458 1,542 1,581

YoY change (%) 32.2 (6.2) (6.8) 45.8 5.7 2.6


We have updated our fin

model for FY20 P&L, BS

and CF statements as

reported.

Shree’s volume fell 4% YoY

in FY20, its first decline in

past 18 years! In our view,

the pace of decline will

accelerate to 19% in FY21,

owing to sharp volume

loss expected in 1HFY21.

We factor in 19% growth

in FY22, as we expect

construction activities to

normalise in FY22E

We also factor in stable

realisation during

FY21/22E. This along with

low energy costs to drive

margin expansion in

FY21/22E.

Page | 4


Long term op performance trends (TTM basis)

We have plotted Shree Cement’s operating metrics on trailing 12-month (TTM) basis,

to assess its long term performance trends

Shree Cement’s vol declined YoY in FY20 after a gap of

18 yrs!!

However, NSR continues to recover owing to favorable

pricing in the north/central regions



Cost controls and falling petcoke and diesel prices also

drove opex contraction, aiding margin expansion

Opex trends: Stable fixed costs, falling input and

logisitcs cost

Source: Company, HSIE Research Source: Company, HSIE Research

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Page | 5


Long term performance trends (TTM basis) continued

Shree Cem’s unitary EBITDA firmed up to its all time

high and also the best in the industry

Shree Cem’s EBITDA and PAT margins expanded

further to their highest levels in last 7-years!

Source: Company, HSIE Research Source: Company, HSIE Research

Peer Set Comparison

Company Mcap

(Rs bn)

CMP

(Rs/sh) Reco TP

EV/EBITDA EV/MT (Rs bn) Net D:E (x) RoE (%)

FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E

UltraTech Cement 908 3,306 BUY 4,850 11.9 12.8 10.5 9.82 9.36 8.72 0.5 0.4 0.2 10.7 8.3 10.2

Shree Cement 676 18,733 REDUCE 17,900 17.2 20.0 16.4 14.55 14.18 13.02 (0.3) (0.3) (0.3) 13.9 7.9 9.7

Ambuja Cements 336 169 BUY 210 8.0 9.0 7.6 5.82 5.50 5.49 (0.7) (0.7) (0.7) 6.8 5.3 6.0

ACC 217 1,154 BUY 1,440 7.1 9.7 8.0 5.35 5.50 5.56 (0.4) (0.4) (0.3) 11.6 8.4 10.6

Ramco Cements 122 518 BUY 670 12.7 13.2 9.6 7.72 7.42 6.68 0.4 0.4 0.3 12.1 10.2 12.7

Dalmia Bharat 97 505 BUY 930 6.8 8.7 6.6 5.20 4.46 3.77 0.4 0.4 0.4 2.0 (1.2) 0.5

JK Cement 85 1,095 BUY 1,355 9.9 10.1 9.2 6.70 6.77 7.17 0.9 0.9 1.0 14.9 11.8 13.9

Star Cement 29 70 BUY 100 7.0 7.4 6.5 4.79 5.09 5.42 (0.1) (0.0) 0.1 15.7 13.5 16.1

JK Lakshmi 23 193 BUY 370 5.2 6.4 5.4 2.86 2.99 2.64 0.6 0.7 0.6 13.8 9.3 11.4

Orient Cement 7.6 37 BUY 85 6.2 6.4 5.8 2.49 2.56 2.93 1.1 1.2 1.3 4.7 4.6 12.3

Deccan Cements 2.8 202 BUY 370 3.3 3.0 3.5 1.15 1.03 1.66 (0.1) (0.1) 0.2 9.9 7.9 11.8

Source: Company, HSIE Research, For ACC and Ambuja, the financial year is CY19/CY20E/CY21E resp

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Financials Standalone Income Statement YE Mar (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E

Revenues 85,943 98,331 117,221 119,040 98,979 117,604

Growth % 16.9 14.4 19.2 1.6 (16.9) 18.8

Raw Material 6,272 7,704 8,642 7,682 6,072 7,464

Power & Fuel 14,443 19,797 27,450 23,476 18,921 21,639

Freight Expense 18,740 25,249 28,869 26,061 20,240 24,517

Employee cost 5,372 5,881 6,778 7,310 7,084 7,971

Other Expenses 15,985 15,377 17,787 17,765 15,135 17,569

EBITDA 25,131 24,324 27,694 36,745 31,528 38,444

EBIDTA Margin (%) 29.2 24.7 23.6 30.9 31.9 32.7

EBITDA Growth % 32.9 (3.2) 13.9 32.7 (14.2) 21.9

Depreciation 12,147 8,994 13,917 16,994 18,586 21,663

EBIT 12,984 15,330 13,777 19,751 12,942 16,781

Other Income (Including EO Items) 3,618 4,294 (493) 2,716 3,148 3,306

Interest 1,294 1,353 2,470 2,865 2,368 2,132

PBT 15,308 18,271 10,814 19,602 13,722 17,955

Tax 1,917 4,430 1,304 3,900 3,225 4,309

RPAT 13,391 13,841 9,510 15,702 10,497 13,646

EO (Loss) / Profit (Net Of Tax) - 403 (2,947) - - -

APAT 13,391 13,438 12,457 15,702 10,497 13,646

APAT Growth (%) (7.7) 0.4 (7.3) 26.0 (33.1) 30.0


Standalone Balance Sheet

YE Mar (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E

SOURCES OF FUNDS

Share Capital 348 348 348 361 361 361

Reserves And Surplus 76,633 88,620 95,626 129,003 135,893 145,570

Total Equity 76,981 88,968 95,974 129,364 136,254 145,931

Long-term Debt 5,188 22,171 23,300 16,597 16,597 16,597

Short-term Debt 7,738 11,859 4,680 7,087 7,087 7,087

Total Debt 12,925 34,030 27,980 23,684 23,684 23,684

Deferred Tax Liability (5,077) (5,131) (6,126) (7,438) (7,438) (7,438)

Long-term Liab+ Provisions 9,602 10,697 13,002 15,617 16,398 17,218

TOTAL SOURCES OF FUNDS 94,432 128,565 130,829 161,228 168,898 179,395

APPLICATION OF FUNDS

Net Block 25,991 35,892 44,757 43,189 39,604 42,940

Capital WIP 7,104 14,272 11,211 9,621 11,621 11,621

Goodwill - - - - - -

Other Non-current Assets 6,783 7,890 5,810 6,583 6,903 7,424

Total Non-current Investments - - 21,583 25,579 25,579 25,579

Total Non-current Assets 39,879 58,053 83,361 84,972 83,706 87,564

Inventories 13,145 15,690 15,891 14,279 13,930 17,239

Debtors 3,351 4,593 7,324 8,285 7,359 8,463

Cash and Cash Equivalents 41,536 55,552 25,934 64,657 67,420 68,691

Other Current Assets (& Loans/adv) 8,673 12,400 13,297 13,749 13,960 14,775

Total Current Assets 66,706 88,235 62,445 100,969 102,670 109,168

Creditors 3,517 7,273 4,508 5,280 3,942 4,702

Other Current Liabilities & Provns 8,635 10,450 10,470 19,433 13,536 12,636

Total Current Liabilities 12,152 17,723 14,978 24,713 17,478 17,337

Net Current Assets 54,553 70,512 47,468 76,255 85,192 91,831

TOTAL APPLICATION OF FUNDS 94,432 128,565 130,829 161,228 168,898 179,395


Page | 7


Standalone Cash Flow YE Mar (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E

Reported PBT 15,308 18,272 12,596 19,602 13,722 17,955

Non-operating & EO Items (3,333) (3,632) (784) (2,680) (3,148) (3,306)

Interest Expenses 1,294 1,353 2,470 2,865 2,368 2,132

Depreciation 12,147 8,994 13,917 16,994 18,586 21,663

Working Capital Change (509) (1,131) (5,302) 5,591 (5,712) (5,069)

Tax Paid (2,891) (5,068) (2,300) (4,859) (3,225) (4,309)

OPERATING CASH FLOW ( a ) 22,017 18,788 20,597 37,514 22,591 29,066

Capex (12,947) (25,263) (18,853) (12,941) (17,000) (25,000)

Free Cash Flow (FCF) 9,070 (6,475) 1,744 24,573 5,591 4,066

Investments (11,576) (18,365) 8,234 (42,698) - -

Non-operating Income 4,044 7,680 2,493 1,906 3,148 3,306

Others

INVESTING CASH FLOW ( b ) (20,479) (35,947) (8,126) (53,733) (13,852) (21,694)

Debt Issuance/(Repaid) 4,455 20,353 (7,591) 1,175 - -

Interest Expenses (1,278) (1,248) (2,753) (2,868) (2,368) (2,132)

FCFE 12,247 12,631 (8,600) 22,880 3,223 1,934

Share Capital Issuance - - - 23,833 - -

Dividend (4,846) (1,843) (2,308) (6,231) (3,608) (3,969)

FINANCING CASH FLOW ( c ) (1,669) 17,262 (12,653) 15,910 (5,976) (6,100)

NET CASH FLOW (a+b+c) (132) 102 (182) (310) 2,763 1,271

EO Items, Others

Closing Cash & Equivalents 31,004 41,638 55,370 25,624 67,420 68,691

Key Ratios FY17 FY18 FY19 FY20 FY21E FY22E

PROFITABILITY %

EBITDA Margin 29.2 24.7 23.6 30.9 31.9 32.7

EBIT Margin 15.1 15.6 11.8 16.6 13.1 14.3

APAT Margin 15.6 13.7 10.6 13.2 10.6 11.6

RoE 18.4 16.2 13.5 13.9 7.9 9.7

RoIC 21.7 18.4 13.6 15.7 10.0 12.0

RoCE 16.4 13.1 11.0 12.3 7.5 8.8

EFFICIENCY

Tax Rate % 12.5 24.2 12.1 19.9 23.5 24.0

Fixed Asset Turnover (x) 2.0 1.8 1.5 1.2 0.9 0.9

Inventory (days) 56 58 49 44 51 54

Debtors (days) 14 17 23 25 27 26

Other Current Assets (days) 37 46 41 42 51 46

Payables (days) 15 27 14 16 15 15

Other Current Liab & Provns (days) 37 39 33 60 50 39

Cash Conversion Cycle (days) 55 56 67 36 66 72

Net Debt/EBITDA (x) (1.1) (0.9) 0.1 (1.1) (1.4) (1.2)

Net D/E (0.4) (0.2) 0.0 (0.3) (0.3) (0.3)

Interest Coverage 10.0 11.3 5.6 6.9 5.5 7.9

PER SHARE DATA (Rs)

EPS 384.4 385.7 357.6 435.2 290.9 378.2

CEPS 733.1 643.9 757.1 906.2 806.1 978.6

Dividend 140.0 50.0 60.0 110.0 100.0 110.0

Book Value 2,209.7 2,553.8 2,754.9 3,585.4 3,776.4 4,044.6

VALUATION

P/E (x) 50.3 50.2 54.1 42.9 64.2 49.4

P/Cash EPS (x) 26.4 29.5 28.8 20.6 23.2 19.1

P/BV (x) 8.8 7.6 7.0 5.2 4.9 4.6

EV/EBITDA (x) 25.7 26.8 24.4 17.2 20.0 16.4

EV/MT (Rs bn) 22 19 16 15 14 13

Dividend Yield (%) 0.7 0.3 0.3 0.6 0.5 0.6

OCF/EV (%) 3.4 2.9 3.0 5.9 3.6 4.6

FCFF/EV (%) 1.4 (1.0) 0.3 3.9 0.9 0.6

FCFE/M Cap (%) 1.8 1.9 (1.3) 3.4 0.5 0.3


Page | 8


Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: > 10% Downside return potential

Date CMP Reco Target

20-May-19 20,346 NEU 19,040

10-Jul-19 21,206 NEU 19,040

10-Aug-19 20,270 NEU 19,200

22-Sep-19 19,250 NEU 19,200

10-Oct-19 18,486 NEU 19,200

22-Oct-19 18,680 NEU 20,000

10-Jan-20 22,815 NEU 20,000

17-Feb-20 24,434 SELL 19,900

2-Mar-20 22,671 SELL 20,600

5-Mar-20 23,256 SELL 20,600

17-Apr-20 18,929 REDUCE 17,900

7-May-20 18,432 REDUCE 17,900

8-May-20 18,733 REDUCE 17,900

From 2nd March 2020, we have moved to new rating system

RECOMMENDATION HISTORY

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y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

-20

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Shree Cement TP

Page | 9


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