3 February 2014
2QFY15 Results Update | Sector:
Cement
Shree Cement
BSE SENSEX
29,000
Bloomberg
S&P CNX
8,757
SRCM IN
CMP: INR10,836
TP: INR12,272 (+13%)
Buy
Equity Shares (m)
34.8
M.Cap. (INR b) / (USD
200.0/3.3
b)
52-Week Range (INR) 11755/4234
1, 6, 12 Rel. Per (%)
Avg Val INRm/Vol ‘000
Free float (%)
Financials & Valuation (INR b)
Y/E June
Sales
EBITDA
NP
Adj EPS
EPS Gr. %)
BV/Sh .INR
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
EV/EBITDA
EV/Ton.USD
2015E 2016E 2017E
68.4
16.2
6.9
199.0
-10.4
1,522
13.8
14.3
54.7
7.2
23.0
275
85.7 106.2
23.8
11.2
61.3
19.3
21.2
34.0
6.0
15.1
242
33.8
19.4
73.2
26.9
31.8
19.6
4.7
10.0
230
12/33/103
134/18
35.2
EBITDA below est. on lower volume and increase in freight cost; strong
quarter for merchant power
Volume-led revenue miss in cement:
SRCM’s 2QFY15 revenue grew 17% YoY
(-3.9% QoQ) to INR15.4b v/s estimate of INR16b. Cement revenue stood at
INR13.5b, +14% YoY (v/s est. of INR14.5b). This was led by lower volume growth of
11% YoY to 3.81mt (-1.7% QoQ) v/s estimate of 4.1mt (19.9% YoY), while
realizations fell 3% QoQ (+3.2% YoY) to INR3,540/ton (in-line).
Freight cost push and lower fixed cost absorption dent profitability:
EBITDA grew
12.7% YoY (-10% QoQ) to INR3b (v/s est. of INR3.3b), translating into margin of
19.7% (-1.3pp QoQ, -0.8pp YoY). Cement EBITDA/ton stood at INR715 (-INR101
QoQ, flat YoY) v/s estimate of INR759, led by ~2% higher cost on account of
increased freight cost (overloading restrictions in Rajasthan) and lesser absorption
of fixed cost (lower volume). Lower depreciation and prior period tax reversal
boost PAT at INR945m, -20% YoY (v/s est. of INR561m).
Strong quarter for merchant power:
Merchant power revenue was up 40% YoY
(1% QoQ) to INR1.9b led by 20% YoY (flat QoQ) volume growth to 491units and
QoQ flat realizations of INR3.92/unit (+16% YoY). EBITDA stood at ~INR309m,
translating into EBITDA/unit at INR0.63 (v/s INR0.4 in 1QFY15, INR0.6 in 2QFY14).
Cut FY16E/17E EPS by ~6%:
We cut FY16E/17E EPS by ~6% to factor (1) lower
cement volume growth of 13% in FY15E (v/s earlier 18%), (2) lower realization
growth of INR300/ton YoY in FY16E (v/s earlier est. of INR400/ton) and (3) higher
power volume and realizations. We raise FY15E EPS by 24% to factor for the lower
depreciation. This translates into FY15E/16E/17E cement EBITDA/ton of
INR1,006/1,232/1,519.
Valuation and view:
The stock trades at 15.1x/10x EV/EBITDA on FY16E/17E
and EV of USD230/ton FY17E (adjusting for merchant power assets of ~400mw).
Maintain
Buy
with an SOTP-based target price of INR12,272 (EV at USD260/ton
and implied 11.3x FY17E EV/EBITDA).
321.0 555.8
1,808 2,323
Estimate change
TP change
Rating change
6%
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Investors are advised to refer through disclosures made at the end 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
Volume-led revenue miss in cement; beat in power business
SRCM’s 2QFY15 revenue grew 17% YoY (-3.9% QoQ) to INR 15.4b v/s estimate of
INR16b. Cement revenue stood at INR13.5b, +14% YoY (v/s est of INR14.5b).
This was led by lower volume growth of 11% YoY to 3.81mt (-1.7% QoQ) v/s est
4.1mt (19.9% YoY), while realizations dropped 3% QoQ (+3.2% YoY) to
INR3,540/ton (in line)
Merchant power revenue was up 40% YoY (1% QoQ) to INR1.9b led by 20% YoY
(flat QoQ) volume growth to 491units and QoQ flat realizations of INR3.92/unit
(+16% YoY)
Exhibit 2:
Power business recorded strong volume and
realizations
Units Sold (m units)
Realization (INR/unit)
Exhibit 1:
Cement posted lower volume growth and drop in
realizations
Realization (INR/ton)
3.5
2.5
2.3
2.6
2.7
2.5 2.8
2.9
Dispatches (m ton)
3.8 3.7 3.9 3.8
3.4
3.4
3.3
3.03.0 3.3 3.2
Source: Company, MOSL
Source: Company, MOSL
Freight cost push and lower fixed cost absorption dent profitability
EBITDA grew 12.7% YoY (-10% QoQ) to INR3b (v/s est of INR3.3b), translating
into margin of 19.7% (-1.3pp QOQ, -0.8pp YoY).
Cement EBITDA/ton stood INR715 (-INR101 QoQ, flat YoY) v/s est of INR759, led
by ~2% beat in cost on account of higher freight cost (overloading restrictions in
Rajasthan) and lesser absorption of fixed cost (lower volume). However, a 2%
QoQ moderation in pet coke prices led sequential drop in energy cost.
EBITDA of merchant power business recorded strong profitability with EBITDA at
~INR309m (v/s estimates of INR171m), translating into EBITDA/unit at INR0.63
(v/s INR0.4 in 1QFY15, INR0.6 in 2QFY14).
Lower depreciation and prior period tax reversal boost PAT at INR945m, -20%
YoY (v/s est of INR561m). Commissioning of Waste Heat Recovery Plant for Unit
10 led higher depreciation for power business.
3 February 2015
2

Shree Cement
Exhibit 3:
EBITDA margin dropped with fall in realizations
EBITDA (INR m)
EBITDA (%)
Exhibit 4:
Trend in cement EBITDA (INR/ton)
EBITDA (INR/Ton)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5:
Power EBITDA (INR/unit) recorded strong uptick
1.9
1.1
2.0
1.6
0.8
0.9
0.5
0.2 0.3
1.1
0.9 0.9
1.1
0.7
0.6
0.2
0.4
(0.0)
0.6
Source: Company, MOSL
Exhibit 6: Cement business income statement (INR/ton)
Net Realization
Raw Material Cost
Staff Cost
Power & fuel
Freight & selling Exp
Other Exp
Total Exp
EBITDA
EBITDA Margin (%)
2QFY15
3,540
326
287
612
855
745
2,825
715
20.2
2QFY14
3,430
265
294
575
817
763
2,715
716
20.9
YoY (%)
3
23
-2
6
5
-2
4
0
1QFY15
QoQ(%)
3,648
-3
337
-3
291
-1
628
-2
818
5
757
-2
2,831
0
817
-12
22.4
Source: Company, MOSL
Cutting FY16/17 EPS by ~6%
We are cutting FY16/17E EPS by ~6% to factor in for (1) lower cement volume
growth of 13% in FY15 (v/s earlier 18%), (2) lower realization growth of
INR300/ton YoY in FY16 (v/s earlier estimates of INR400/ton), and (3) higher
power volume and realizations.
We are raising FY15 EPS by 24% to factor in for lower depreciation. This
translates into FY15/16/17 cement EBITDA/ton of INR1,006/INR1,232/1,519.
3 February 2015
3

Shree Cement
Exhibit 7: Revised estimates
(INR B)
Net Sales
EBITDA
Net Profit
EPS (INR)
Rev
68.4
16.2
6.9
199.0
FY15E
Old
69.1
16.1
5.6
160.2
Chg (%)
-1
0.8
24.2
24.2
FY16E
Rev
Old Chg (%) Rev
85.7
85.9
0
106.2
23.8
24.8
-4.1
33.8
11.2
11.9
-6.2
19.4
321.0 342.0 -6.2
555.8
FY17E
Old Chg (%)
103.8
2
33.8
-0.2
20.6
-6.1
592.2
-6.1
Source: Company, MOSL
Valuation & view
SRCM is strongly placed among large cap peers to benefit from demand up-cycle
due to (1) strong volume levers (systematic capacity addition), (2) cost
leadership, (3) healthy balance sheet with INR13b of net cash and (4) critical
mass for consistent superior growth from internal accruals.
Entry in new market (East) with 2.5mt of Greenfield plant in Chhattisgarh may
lead to interim rise cost structure, but it would improve company’s market mix
with further diversification.
We expect SRCM to generate operating cash flow of ~INR70b over FY15-17 v/s
announced capex need of INR30-35b. Hence, it would be able to drive growth
without impacting its balance sheet.
The stock trades at 15.1x/10x EV/EBITDA on FY16/17E and EV of US$230/ton
FY17E (adjusting for Merchant Power assets of ~400MW). Maintain Buy with
SOTP based target price of INR12,272 (EV at USD260/ton and implied 11.3x
FY17E EV/EBITDA). Buy
Exhibit 8: Shree Cement - Sum of the parts valuations
INR M
Cement business
Merchant Power
Total EV
Less: Net Debt
Equity Value
Fair Value (INR/share)
EV/Ton at TP (USD)
Parameter
EV/EBITDA
DCF
Factor
11
@ 12% WACC
FY17
370,347
12,808
383,155
-44,356
427,511
12,272
260
Source: Company, MOSL
3 February 2015
4

Shree Cement
Exhibit 9: Steady growth in capacity aids volume levers
Exhibit 10: Operating profitability superior to industry (INR)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: B/S strong to drive consistent growth from
internal accruals
Exhibit 12: Return ratio set to improve gradually with
volume recovery
Source: Company, MOSL
Source: Company, MOSL
3 February 2015
5

Shree Cement
Corporate profile: Shree Cement
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 8: Sensex rebased
11,500
10,000
8,500
7,000
5,500
4,000
Feb-14
May-14
Aug-14
Nov-14
Feb-15
Shree Cement
Sensex - Rebased
Shareholding pattern (%)
Dec-14
Promoter
DII
FII
Others
64.8
5.6
11.3
18.3
Sep-14
64.8
5.7
11.0
18.5
Dec-13
64.8
5.9
8.2
21.2
Top holders
Holder Name
FLT Ltd
UTI Opportunities Fund UTI Infrastructure Fund UTI
HDFC Standard Life Insurance Company Ltd
% Holding
10.3
1.9
1.5
Note: FII Includes depository receipts
Top management
Name
B G Bangur
H M Bangur
Designation
Chairman
Managing Director
Directors
Name
B G Bangur
H M Bangur
Y K Alagh*
O P Setia*
R L Gaggar*
Name
Nitin Desai*
Shreekant Somany*
Leena Srivastava*
Ramakant Sharma
Prashant Bangur
*Independent
Auditors
Name
B R Maheshwari & Co
P K Ajmera & Co
K G Goyal & Associates
Type
Statutory
Internal
Cost Auditor
MOSL forecast v/s consensus
EPS
(INR)
FY15
FY16
FY17
MOSL
forecast
199.0
321.0
555.8
Consensus
forecast
260.2
393.6
541.4
Variation
(%)
-23.5
-18.5
2.7
3 February 2015
6

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 (%)
2010 ^
36,321
34.0
21,296
58.6
15,025
41.4
5,704
9,321
1,291
1,284
9,313
634
8,679
1,918
22.1
6,761
7,097
18.6
19.5
2011 ^
34,535
-4.9
25,687
74.4
8,848
25.6
6,758
2,091
1,753
1,251
1,588
485
1,103
-994
-90.0
2,097
2,582
-63.6
7.5
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
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
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
2015E
68,432
16.5
52,232
76.3
16,199
23.7
8,949
7,251
1,402
1,450
7,299
0
7,299
365
5.0
6,934
6,934
-10.4
10.1
(INR Million)
2016E
85,737
25.3
61,934
72.2
23,803
27.8
11,144
12,659
1,304
1,800
13,155
0
13,155
1,973
15.0
11,182
11,182
61.3
13.0
2017E
106,240
23.9
72,487
68.2
33,754
31.8
11,178
22,576
1,067
3,000
24,510
0
24,510
5,147
21.0
19,363
19,363
73.2
18.2
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
E: MOSL Estimates; ^ Y/E March
2010 ^
348
17,984
17,984
18,332
-124
18,306
2,756
21,062
39,271
36,189
21,995
14,194
3,000
15,922
15,822
3,581
824
4,164
7,252
9,667
4,668
4,999
6,155
39,271
2011 ^
348
19,513
19,513
19,862
-723
19,079
1,000
20,079
39,218
42,713
28,752
13,961
5,000
11,965
17,756
4,042
1,082
4,987
7,644
9,463
6,635
2,828
8,293
39,218
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
2015E
348
52,682
52,682
53,031
-2596
10,783
0
10,783
61,217
88,864
54,690
34,174
5,000
22,444
13,995
6,937
3,281
-5,034
8,812
14,396
13,124
1,272
-401
61,217
2016E
348
62,649
62,649
62,998
-3386
9,283
0
9,283
68,895
96,864
65,833
31,030
4,500
22,444
29,352
8,691
4,111
7,154
9,396
18,431
16,443
1,988
10,920
68,895
2017E
348
80,595
80,595
80,944
-3386
7,783
0
7,783
85,341
106,364
77,011
29,353
2,500
22,444
54,701
10,770
5,094
27,195
11,643
23,657
20,375
3,282
31,044
85,341
3 February 2015
7

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 (%)
RoE
RoCE
Working Capital Ratios
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Capital Turnover (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
2010 ^
203.7
455.6
526.2
13.0
7.8
2011 ^
74.1
394.1
570.1
14.0
27.2
2012
162.8
479.1
784.8
20.0
14.5
2013
288.5
441.3
1,103.3
20.0
8.1
2014
222.2
427.5
1,352.3
22.0
11.4
2015E
199.0
572.6
1,522.2
25.0
14.6
2016E
321.0
776.8
1,808.4
30.0
10.9
2017E
555.8
991.9
2,323.5
35.0
7.3
53.5
23.9
20.7
10.9
25.3
5,927
494
0.1
5,962
452
66.9
22.7
13.9
8.2
26.4
5,669
420
0.2
37.8
24.7
9.9
7.0
23.7
5,635
417
0.2
49.1
25.5
8.1
6.6
26.6
5,597
320
0.2
54.7
19.0
7.2
5.8
23.0
5,773
275
0.2
34.0
14.0
6.0
4.5
15.1
5,576
242
0.3
19.6
11.0
4.7
3.4
10.0
5,282
230
0.3
46.6
31.9
13.5
8.4
24.0
19.6
30.6
28.1
18.1
19.0
13.8
14.3
19.3
21.2
26.9
31.8
36
8
47
62
43
11
70
88
38
14
106
13
35
21
71
50
50
18
88
28
37
18
70
-2
37
18
70
46
37
18
70
107
1.6
1.1
1.9
1.0
1.1
0.6
1.6
0.3
1.3
0.2
1.0
0.2
1.6
0.1
2.3
0.1
Cash Flow Statement
Oper. Profit/(Loss) before Tax
Interest/Dividends Recd.
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
2010 ^
14,498
1,131
-1,897
-61
13,671
2011 ^
8,848
1,251
395
-1,315
9,180
2012
13,865
1,471
-564
6,173
20,945
2013
15,368
2,114
-2,198
-5,957
9,326
2014
13,630
1,964
-1,729
990
14,854
2015E
16,199
1,450
-1,533
-1,730
14,387
(INR Million)
2016E
23,803
1,800
-2,763
867
23,707
2017E
33,754
3,000
-5,147
-83
31,524
(inc)/dec in FA
(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
3 February 2015
-11,710
-6,306
-18,016
0
5,729
-1,332
-611
3,786
-559
4,723
4,164
-8,525
3,958
-4,567
-482
-983
-1,753
-571
-3,789
823
4,164
4,987
-4,350
-13,387
-17,738
2,617
-3,468
-1,878
-815
-3,544
-337
4,987
4,590
-7,331
3,319
-4,012
1,867
-5,337
-1,931
-810
-6,211
-896
4,590
3,693
-15,869
-411
-16,280
1,697
-491
-1,292
-897
-983
-2,409
3,694
1,284
-18,600
0
-18,600
0
0
-1,402
-1,012
-2,414
-6,627
1,593
-5,034
-7,500
0
-7,500
0
-1,500
-1,304
-1,214
-4,019
12,188
-5,034
7,154
-7,500
0
-7,500
0
-1,500
-1,067
-1,417
-3,983
20,041
7,154
27,195
8

Shree Cement
NOTES
3 February 2015
9

Shree Cement
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