16 May 2017
4QFY17 Results Update | Sector: Cement
Shree Cement
Buy
BSE SENSEX
30,583
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
9,512
SRCM IN
Cost push confines realization improvement
35
Volume growth led by ramp-up in east:
SRCM’s 4QFY17 volumes increased
546.2 / 8.0
~11% YoY (+21% QoQ) to 5.9mt, led by capacity ramp-up in east. Realizations
20,560/12,477
rose 2% QoQ (+14% YoY) due to an increase in prices in its focus markets in
9/27/30
261
north in February and March 2017. Realizations for 1QFY18 are also expected
35.2
to improve QoQ as (1) exit realizations were better than 4QFY17 average and
CMP: INR19,945 TP: INR23,316 (+17%)
Financials & Valuations (INR b)
Y/E Mar
2017
2018E
Net Sales
84.3
100.3
EBITDA
23.7
28.0
PAT
13.4
16.7
EPS (INR)
384.4
480.7
Gr. (%)
5.4
25.0
BV/Sh (INR)
2,024
2,458
RoE (%)
20.2
21.5
RoCE (%)
19.4
20.3
P/E (x)
51.9
41.5
P/BV (x)
9.9
8.1
2019E
122.3
35.8
21.6
621.0
29.2
3,032
22.6
21.7
32.1
6.6
Estimate change
TP change
Rating change
(2) additional price hikes were taken in April in north and east.
Margin deterioration led by cost push:
EBITDA of INR5.1b (-4% YoY) came in
higher than our estimate of INR4.34b due to higher-than-estimated profit
from the power segment. However, overall margin contracted 3.9pp QoQ (-
5.1pp YoY) to 21.5% due to higher-than-expected freight cost and other
expenses. Unitary cost rose 18% YoY (+8% QoQ), led by higher power/fuel
cost, freight cost and other expenses. Freight cost/t increased 20% QoQ due
to 1) higher freight cost for servicing the Bihar market as its unit in that state
was shut for ~23 days, 2) impact of 12% QoQ increase in diesel cost, 3) lower
proportion of ex-factory sales at 12% v/s 14% in the year-ago period, and 4)
higher freight cost for eastern units due to lower availability of rakes.
FY17 performance:
Volumes increased 11% YoY to 20.5mt, led by ramp-up of
its units in east. Revenue rose by 16.5% YoY to INR84.2b and EBITDA by 28%
YoY to INR23.6b, with the margin at 28.1% (+3.7pp YoY). PAT increased only
5% YoY to INR13.39b due to lower other income of INR5.07b (-29% YoY).
Strong earnings CAGR and return ratio improvement warrant valuation
premium:
Led by profitability improvement and market share gains due to
aggressive capacity addition, we expect EBITDA CAGR of 23% over FY17-FY19.
SRCM is likely to generate operating cash flow of INR108b over FY16-FY19,
with margin improvement and better asset turnover resulting in PBT CAGR of
34% over FY17-FY19 and RoIC in excess of 50% in FY19. We maintain
Buy
with
a target price of INR23,316.
(INR Million)
1Q
4.19
7.9
3,619
-0.8
4.1
17,119
6.6
4,163
24.3
2,448
235
958
2,438
2,438
-26
-1.1
2,464
2,464
107.4
FY16
2Q
4.70
23.3
3,449
-2.6
-4.7
18,030
16.9
4,586
25.4
2,766
235
1,017
2,602
2,601
265
10.2
2,336
2,337
147.4
3Q
5.36
29.7
3,310
-6.4
-4.0
19,988
27.0
5,320
26.6
3,062
288
4,752
6,722
7,275
501
6.9
6,774
6,260
402.4
1Q
5.13
18.0
3,885
11.8
17.4
21,987
27.9
7,308
33.2
1,540
276
979
6,471
6,471
1,394
21.5
5,077
5,077
106.1
FY17
2Q
4.57
9.2
3,965
9.6
2.1
20,068
17.2
6,563
32.7
4,322
293
1,233
3,180
3,180
265
8.3
2,915
2,915
18.3
FY16
3Q
4.91
4.5
3,699
7.2
-6.7
18,434
2.2
4,689
25.4
3,176
411
1,356
2,459
2,438
83
3.4
2,354
2,375
1.6
4Q
5.93
10.7
3,771
13.9
1.9
23,803
19.1
5,112
21.5
3,109
314
1,510
3,199
3,199
154
4.8
3,045
3,045
-51.4
18.59
15.0
3,456
-2.6
72,382
12.4
17,637
24.4
10,658
1,021
7,119
13,076
12,837
364
2.8
12,472
12,705
173.8
FY17
20.54
10.5
3,825
10.7
84,292
16.5
23,672
28.1
12,147
1,294
5,077
15,308
15,308
1,917
12.5
13,391
13,391
5.4
FY18E
23.15
12.7
4,075
6.5
100,302
19.0
28,027
27.9
12,241
1,318
7,000
21,468
21,468
4,723
22.0
16,745
16,745
25.0
FY17
4QE
5.95
11.1
3,590
7.3
-2.9
22,138
9.7
4,340
19.6
2,994
175
1,432
2,603
2,603
315
12.1
2,288
2,288
2.4
Var.
(%)
0
5
Quarterly Performance - Shree Cement (S/A)
Y/E June
Sales Dispat. (m ton)
YoY Change (%)
Realization (INR/Ton)
YoY Change (%)
QoQ Change (%)
Net Sales
YoY Change (%)
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO Exp
PBT
Tax
Rate (%)
Reported PAT
Adj PAT
YoY Change (%)
8
18
23
23
33
Abhishek Ghosh
(Abhishek.Ghosh@MotilalOswal.com); +91 22 6129 1538
Pradnya Ganar
(Pradnya.Ganar@MotilalOswal.com); +91 22 3980 4322
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Shree Cement
Exhibit 1: Realization increase due to price hike in North
Realization (INR/ton)
Dispatches (m ton)
5.9
5.45.1
4.9
4.7
4.6
4.3
4.2
Exhibit 2: Total Cost per tonne (INR/t)
Costs Per Tonne
3.8
3.3 3.8 3.7
3.4 3.3 3.2
2.7 2.8
3.0
3.9 4.1
2.5
3.4
3.5
3.0
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3:
Margin contraction led by higher costs
EBITDA (INR m)
EBITDA (%)
Exhibit 4: Trend in cement EBITDA
EBITDA (INR/Ton)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Key Performance Indicator
INR/t
Net Realization
Raw Material Cost
Staff Cost
Power & fuel
Freight & selling Exp
Other Exp
Total Exp
EBITDA
EBITDA Margin (%)
4QFY17
3,771
365
228
576
1,023
760
2,952
818
21.7
4QFY16
3,310
288
237
456
800
710
2,491
819
24.8
YoY (%)
14
27
-4
26
28
7
19
0
3QFY17
3,699
294
267
533
856
772
2,723
976
26.4
QoQ(%)
2
24
-15
8
19
-2
8
-16
Source: MOSL, Company
Exhibit 6: Revised Capacity Expansion Plan
Location
Bihar
Bihar
Rajasthan
Karnataka
Grinding Unit Capacity
0.9MT
5.5MT
3.6MT
4.0 MT
Estimated Capacity
170m
3.35B
3.0B
18.0 B
Completion
2QFY18
4QFY18
1QFY19
3QFY19
Source: Company
16 May 2017
2

Shree Cement
Warrant premium valuations; maintain Buy
On the cusp of next phase of expansion:
Notwithstanding regional
concentration, SRCM has delivered the strongest and most consistent growth in
the industry (14% in FY13-16 v/s ~4% for the industry). This was achieved by
doubling capacity to 25.5mt over the last 3-4 years and entry into the fast
growing East market. After creating leadership in the North (20-25% capacity
share), SRCM is on cusp of replicating the same in the East (existing 4mt to
double) and South (entry with 4mt in Gulbarga). This, along with another 4mt of
additional lines in north would take SRCM’s capacity at 38-40mt by FY20.
Differentiating, self-sustainable and low cost expansion aid comfort:
SRCM
aims to add 12-15mt over FY17-20 spending ~INR60b implying US$65- 75/ton of
incremental capex (v/s industry practice of US$90-130/ton) thanks to its strong
preparedness in limestone and land. SRCM’s differentiated expansion strategy
and on-time execution drives our conviction in its growth capability. It has
followed a strategy of small but regular expansions aligned with market
demand, which helps to achieve (a) quick payback and (b) minimum pressure on
balance sheet. Interestingly, during doubling of capacity, SRCM’s net cash grew
from INR14b (FY13) to INR17b (FY16) – which speaks volume on its growth
sustenance.
Absolute cost leadership – ahead of the curve initiatives:
Being pioneer in
many cost initiatives in India, SRCM is the lowest cost producer (30-35% lower
than industry average). It enjoys (a) best energy efficiency (earliest adoption of
pet coke, WHRS, AFR, 100% CPP), (b) single location largest kiln in the North
(12mt), aiding economies of scale, and (c) pioneer in split grinding strategy
(savings on logistics, open wagon transport). SRCM’s cost competence and B/S
strength make it favorably placed for growth, scalability and profitability with (a)
wide market reach, (b) quick utilization ramp-up, and (c) ability to garner critical
resources (land, limestone) by overcoming regulatory hurdles.
Strong earnings CAGR and return ratio improvement warrant valuation
premium:
Led by profitability improvement and market share gains due to
aggressive capacity addition, we expect EBITDA CAGR of 23% over FY17-FY19.
SRCM is likely to generate operating cash flow of INR108b over FY16-FY19, with
margin improvement and better asset turnover resulting in PBT CAGR of 34% over
FY17-FY19 and RoIC in excess of 50% in FY19. We maintain Buy with a target price
of INR23,316
16 May 2017
3

Shree Cement
Financials and Valuations
Income Statement
Y/E June
Net Sales
Change (%)
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depriciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT before EO Expense
EO Expense/(Income)
PBT after EO Expense
Tax
Tax Rate (%)
Reported PAT
Adj PAT for EO items
Change (%)
Margin (%)
Normal PAT *
2012
47,806
38.4
33,941
71.0
13,865
29.0
7,133
6,732
1,878
1,471
6,325
41
6,284
649
10.3
5,635
5,671
119.7
11.9
9,558
2013
55,671
16.5
40,293
72.4
15,378
27.6
4,356
11,022
1,931
2,114
11,205
11
11,194
1,155
10.3
10,040
10,049
77.2
18.1
11,017
2014
58,759
5.5
44,975
76.5
13,784
23.5
5,499
8,285
1,292
1,964
8,957
-154
9,111
1,238
13.6
7,872
7,739
-23.0
13.2
9,392
2015
64,399
9.6
51,097
79.3
13,302
20.7
9,248
4,054
1,206
1,515
4,363
355
4,008
-255
-6.4
4,263
4,640
-40.0
7.2
9,610
2016
72,382
12.4
54,746
75.6
17,637
24.4
10,658
6,979
1,021
7,119
13,076
240
12,837
364
2.8
12,472
12,705
173.8
17.6
17,792
2017
84,292
16.5
60,619
71.9
23,672
28.1
12,147
11,525
1,294
5,077
15,308
0
15,308
1,917
12.5
13,391
13,391
5.4
15.9
18,965
(INR Million)
2018E
100,302
19.0
72,275
72.1
28,027
27.9
12,241
15,786
1,318
7,000
21,468
0
21,468
4,723
22.0
16,745
16,745
25.0
16.7
21,448
2019E
122,345
22.0
86,538
70.7
35,807
29.3
15,961
19,846
1,108
9,000
27,737
0
27,737
6,102
22.0
21,635
21,635
29.2
17.7
28,492
Balance Sheet
Y/E June
Equity Share Capital
Other Reserves
Total Reserves
Net Worth
Deferred Liabilities
Secured Loan
Unsecured Laon
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
2012
348
26,991
26,991
27,339
-697
16,079
532
16,611
43,253
50,564
35,886
14,678
1,500
25,352
17,499
5,033
1,811
4,590
6,065
15,776
13,822
1,954
1,723
43,253
2013
348
38,088
38,088
38,436
-938
11,274
0
11,274
48,773
56,895
40,242
16,653
2,500
22,033
19,478
5,305
3,147
3,694
7,333
11,891
10,841
1,050
7,587
48,773
2014
348
46,760
46,760
47,109
-1429
10,783
0
10,783
56,463
66,764
45,741
21,023
8,500
22,444
19,892
8,098
2,966
1,593
7,236
15,396
14,209
1,186
4,496
56,463
2015
348
52,416
52,416
52,764
-1952
8,200
0
8,200
59,012
85,764
54,989
29,154
6,000
16,626
26,246
9,189
4,764
3,075
9,219
19,015
18,135
880
7,231
59,012
2016
348
61,454
61,454
61,802
-2634
7,167
0
7,167
66,335
95,014
63,265
29,647
3,500
23,682
28,219
8,152
3,286
2,602
14,179
18,921
18,709
213
9,298
66,127
2017
348
70,149
70,149
70,498
-3958
10,167
0
10,167
76,706
97,514
75,412
22,102
10,000
23,682
46,982
12,701
6,466
17,422
10,392
26,268
23,094
3,175
20,714
76,498
(INR Million)
2018E
348
85,275
85,275
85,623
-3743
8,667
0
8,667
90,547
109,514
87,652
21,862
10,000
23,682
62,126
10,442
5,496
34,646
11,542
27,331
26,106
1,225
34,794
90,338
2019E
348
105,291
105,291
105,639
-3466
7,167
0
7,167
109,340
129,514
103,613
25,901
10,000
23,682
81,205
11,397
5,698
50,702
13,408
31,656
30,167
1,489
49,549
109,131
16 May 2017
4

Shree Cement
Financials and Valuations
Ratios
Y/E June
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
EV (US$)
EV/ton (USD-Cap)
Dividend Yield (%)
Return Ratios (%)
RoIC
RoE
RoCE
Normalized RoE
Working Capital Ratios
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Capital Turnover (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
2012
162.8
479.1
784.8
20.0
14.5
122.5
41.6
25.4
14.8
49.2
9,928
735
0.1
41.5
24.0
17.5
40.5
38
14
106
13
1.1
0.6
2013
288.5
441.3
1,103.3
20.0
8.1
69.1
45.2
18.1
12.6
44.2
9,896
733
0.1
61.1
30.6
25.2
33.5
35
19
71
50
1.6
0.3
2014
222.2
427.5
1,352.3
22.0
11.4
89.8
46.7
14.7
12.0
49.4
9,862
564
0.1
32.2
18.1
16.5
22.0
50
17
88
28
1.3
0.2
2015
133.2
541.3
1,514.6
24.0
22.8
149.7
36.8
13.2
10.9
51.4
9,935
423
0.1
15.1
9.3
10.0
19.2
52
24
103
41
1.4
0.2
2016
364.7
816.7
1,774.0
24.0
7.8
54.7
24.4
11.2
9.7
38.3
9,878
387
0.1
19.4
22.2
21.1
31.1
41
15
94
47
1.5
0.1
2017
384.4
893.1
2,023.6
116.0
35.1
51.9
22.3
9.9
8.2
28.0
9,636
356
0.6
32.4
20.2
19.4
28.7
55
25
100
90
1.8
0.1
2018E
480.7
967.0
2,457.8
40.0
9.7
41.5
20.6
8.1
6.7
23.0
9,378
322
0.2
51.5
21.5
20.3
27.5
38
18
95
127
2.3
0.1
2019E
621.0
1,276.0
3,032.4
40.0
7.5
32.1
15.6
6.6
5.3
17.5
9,133
234
0.2
65.6
22.6
21.7
29.8
34
15
90
148
2.6
0.1
Cash Flow Statement
Oper. P/L before Tax
Interest/Dividends Recd.
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from investments
Issue of Shares
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
2012
13,865
1,471
-564
6,173
20,945
-4,350
16,594
-13,387
-17,738
2,617
-3,468
-1,878
-815
-3,544
-337
4,987
4,590
2013
15,368
2,114
-2,198
-5,957
9,326
-7,331
1,995
3,319
-4,012
1,867
-5,337
-1,931
-810
-6,211
-896
4,590
3,693
2014
13,938
1,964
-1,729
990
15,162
-15,869
-707
-411
-16,280
1,697
-491
-1,292
-897
-983
-2,101
3,694
1,592
2015
12,947
1,515
-268
-1,253
12,942
-14,879
-1,938
5,818
-9,062
2,364
-2,583
-1,206
-972
-2,398
1,482
1,593
3,075
2016
13,701
6,675
-1,221
-2,360
16,794
-6,268
10,526
-7,056
-13,324
-1,422
-1,033
-758
-972
-4,184
-713
3,075
2,602
2017
23,672
5,077
-3,241
3,405
28,913
-11,103
17,810
0
-11,103
0
3,000
-1,294
-4,696
-2,990
14,820
2,602
17,422
(INR Million)
2018E
28,027
7,000
-4,508
3,143
33,661
-12,000
21,661
0
-12,000
0
-1,500
-1,318
-1,619
-4,438
17,224
17,422
34,646
2019E
35,807
9,000
-5,825
1,302
40,284
-20,000
20,284
0
-20,000
0
-1,500
-1,108
-1,619
-4,228
16,057
34,646
50,702
16 May 2017
5

Shree Cement
Corporate profile
Company description
Shree Cement is the largest single-location
integrated cement plant in North India, with an
installed capacity of 13m ton. It is strategically
located in central Rajasthan from where it can cater
to the entire Rajasthan market as well as Delhi and
Haryana, with economic logistics cost. It is a
significant player in North India. Over the years, it
has established a reputation as one of the world’s
most efficient cement manufacturers.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Mar-17
Promoter
DII
FII
Others
64.8
14.7
14.6
6.0
Dec-16
64.8
15.0
14.4
5.9
Mar-16
64.8
15.5
13.6
6.1
Source: Capitaline
Exhibit 3: Top holders
Holder Name
FLT Limited
CARTICA CAPITAL LTD
PINEBRIDGE INV ASIA LIMITED A/C
PINEBRIDGE INVESTMENTS GF MAURITIUS
LIMITED
UTI MUTUAL FUND
% Holding
10.3
2.1
1.3
1.3
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
B G Bangur
H M Bangur
Prashant Bangur
S S Khandelwal
Designation
Chairman
Managing Director
Joint
Managing
Director
Company Secretary
Exhibit 5: Directors
Name
RAMAKANT SHARMA
Nitin Desai
R L Gaggar
Shreekant Somany
Name
Leena Srivastava
O P Setia
Sanjiv Krishnaji Shelgikar
Y K Alagh
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
B R Maheshwari & Co
K G Goyal & Associates
P K Ajmera & Co
P Pincha & Associates
Type
Statutory
Cost Auditor
Internal
Secretarial Audit
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY18
FY19
MOSL
forecast
480.7
621.0
Consensus
forecast
474.7
625.9
Variation (%)
1.3
-0.8
Source: Bloomberg
16 May 2017
6

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NOTES
16 May 2017
7

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SHREE CEMENT
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16 May 2017
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8