2 February 2016
2QFY16 Results Update | Sector: Cement
Shree Cement
Neutral
BSE SENSEX
24,539
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
7,456
SRCM IN
14-quarter high growth amidst; Cost savings negates realization hit
34.8
14-quarter high growth amidst pricing dip:
SRCM’s 2QFY16 EBITDA stood in
361.4 / 5.3
line at INR4.2b, +40% YoY (est INR4.1b) led by strong volume growth and
13345 / 9350
duality of softening realization getting offset by cost savings. On the back east
-2/2/11
240
expansion, SRCM posted 23% YoY (+12% QoQ) growth in volume at 4.7mt (est
35.2
4.5mt), albeit dismal realizations (down 4% QoQ v/s est -2.5%) highlights
CMP:INR10,375 TP: INR11,634(12%)
Financials & Valuations (INR b)
Y/E June
2015
2016E 2017E
Net Sales
64.4
72.5
85.0
EBITDA
13.3
17.0
21.7
PAT
4.6
6.0
10.8
EPS (INR)
133.2
171.8
309.8
Gr. (%)
-40.0
29.0
80.3
BV/Sh (INR) 1,514.6 1,614.5 1,883.6
RoE (%)
9.3
11.0
17.7
RoCE (%)
9.4
11.6
18.2
P/E (x)
77.9
60.4
33.5
P/BV (x)
6.8
6.4
5.5
EV/EBITDA(x) 26.3
20.3
15.4
EV/Ton(USD) 211
193
186
Estimate change
TP change
Rating change
competitive intensity prevailing. Cement revenue was at INR16.5b, +22% YoY
(4% beat), while merchant power revenue stood at INR1.8b (est INR2b), led by
lower realizations of INR3.37/unit (-8% QoQ) and stable volume.
Cost savings negates realization hit, profitability in line:
EBITDA margin stood
at 23.2% (+0.7pp QoQ, +3.5pp YoY) despite dip in realizations. Cost/ton was
lower 4-5% QoQ/YoY led by (a) savings in energy (sharp decline in pet coke
price), (b) freight (lower lead distance, down -10% YoY), and (c) positive
operating leverage. Cement EBITDA stood at INR796 (flat QoQ, +11% YoY).
Power EBITDA stood below est with EBITDA/unit of INR0.93 (v/s INR1.1 QoQ)
Marginal cut in estimates:
Higher depreciation (UP grinding commission) and
tax (no MAT credit) led PAT at INR1.03b (est INR1.1b). We cut FY16 (9M)
EBITDA by 1-3% after factoring in lower pricing trends, higher volume (13% v/s
11% earlier in FY16) and lower energy and freight cost. It translates into
FY16/17E cement EBITDA/ton of INR808/INR941 (INR744 in FY15).
Valuation premium came off, maintain neutral:
The stock trades at
15.4x/10.9x EV/EBITDA on FY17/18E and EV of US$169/ton FY17E (adjusting
for Merchant Power assets), which is 5- 10% premium to UTCEM at various
valuation parameters. The premium valuation has contracted post recent
underperformance. While we consider SRCM as one of resilience bet to play
cement up cycle, we continue to maintain our neutral stance still we get
visibility on sectoral growth sustenance. We value SRCM at SOTP based TP of
INR11,600/share (EV at USD200/ton and 12.5x FY18E EV/EBITDA), 12% upside.
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.
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Aashumi Mehta
(aashumi.mehta@motilaloswal.com);

Shree Cement
Exhibit 1: Strong volume, dismal realizations
Realization (INR/ton)
Dispatches (m ton)
3.8 3.7 3.9 3.8
3.4
4.1 4.3 4.2
4.7
Exhibit 2: Power realizations dip
Units Sold (m units)
Realization (INR/unit)
2.9
2.6 2.7
2.5
3.5
3.3 3.3
3.2
2.8
3.0 3.0
3.4
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3:
Margin sustained led by cost savings
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) posted strong boost
2.0
1.6
0.8
0.9
0.5
0.2 0.3
1.1
0.9 0.9
1.1
0.7
1.1 1.1
0.6
0.2
(0.0)
0.4
0.6
0.4
0.9
Source: Company, MOSL
2 February 2016
2

Shree Cement
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 (%)
2QFY16
3,500
391
256
525
780
753
2,704
796
22.7
2QFY15
3,540
326
287
612
855
745
2,825
715
20.2
YoY (%)
-1
20
-11
-14
-9
1
-4
11
1QFY16
3,646
308
293
564
829
863
2,857
789
21.6
QoQ(%)
-4
27
-13
-7
-6
-13
-5
1
Source: Company, MOSL
Exhibit 7: Revised estimates
(INR B)
Net Sales
EBITDA
Net Profit
EPS (INR)
Rev
72
17
6
172
FY16E
Old
Chg (%)
72
0
17
-1
7
-10
192
-10
Rev
85
22
11
310
FY17E
Old
Chg (%)
86
-1
22
-3
11
-5
327
-5
FY87E
Rev
Old
Chg (%)
100
101
-1
29
29
-2
16
16
-4
447
464
-4
Source: Company, MOSL
Valuation premium came off; maintain neutral
SRCM is strongly placed to reap benefits of up-cycle with (1) high volume levers
(systematic capacity addition), (2) cost leadership, (3) healthy balance sheet
with ~INR16b of net cash, and (4) consistent growth capital from internal
accruals. It enjoys industry leading profitability and RoEs (~22% by FY18). Entry
into east offers geographical diversification, better market mix and profitability.
The company has established itself as most efficient cement players
commanding significant premium valuations in the cement pack due to quality
and certainty of (a) growth, (b) healthy capital efficiencies, and (c) strong
management prowess which ensure operational outperformance in future.
We factor in for 13% volume and 7% price CAGR over FY16-18, translating into
cement EBITDA/ton of INR941/INR1,181 in FY17/18 (v/s INR808 in FY16).
The stock trades at 15.4x/10.9x EV/EBITDA on FY17/18E and EV of US$169/ton
FY17E (adjusting for Merchant Power assets), which is 5- 10% premium to
UTCEM at various valuation parameters. The premium valuation has contracted
post recent underperformance.
While we consider SRCM as one of resilience bet to play cement up cycle, we
continue to maintain our neutral stance still we get visibility on sectoral growth
sustenance. We value SRCM at SOTP based TP of INR11,600/share (EV at
USD200/ton and 12.5x FY18E EV/EBITDA), aiding 12% upside.
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
12.5
@ 12% WACC
FY18
343,184
9,528
352,712
-52,577
405,289
11,634
200
Source: Company, MOSL
2 February 2016
3

Shree Cement
Exhibit 9: Steady growth in capacity aids volume levers
Capacity (mt)
94
88
94
85
78
Dispatch (mt)
90
92
81
69
72
83
Utilization (%)
88
59
53
Exhibit 10: Operating profitability superior to industry (INR)
Cement EBITDA/ton
Power EBITDA/ton
107
62
200
47
79
118
84
62
1,306 1,061 1,359 810 1,077 1,034 921 744 808 941 1,181
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16EFY17EFY18E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: B/S strong to drive consistent growth from
internal accruals
30
10
-10
-30
-50
FY08
FY10
FY12
FY14
FY16E
FY18E
Net debt (INR b)
CWIP as % CE
DER (x)
0.8
0.4
0.0
-0.4
-0.8
Exhibit 12: Return ratio set to improve gradually with
volume recovery
80
60
40
20
0
FY08
FY10
FY12
FY14
FY16E
FY18E
RoE
RoCE
Source: Company, MOSL
Source: Company, MOSL
Exhibit 13: Common Size Statement excluding Power sales (INR/ton)
Y/E June
Realization
Expenditure
RM Cost
Staff Cost
Power & Fuel
Freight
Other Expenses
Total Op cost
EBITDA
1Q
3,334
306
311
525
765
759
2,664
670
FY14
2Q
3Q
3,430
3,863
265
294
575
817
763
2,715
716
280
238
566
893
808
2,786
1,076
4QE
3,994
401
273
581
855
714
2,825
1,169
1Q
3,648
337
291
628
818
757
2,831
817
FY15
2Q
3,540
326
287
612
855
745
2,825
715
3Q
3,537
295
276
616
852
711
2,749
788
4Q
3,475
285
274
621
923
709
2,812
663
FY16
1Q
3,646
308
293
564
829
863
2,857
789
2Q
3,500
391
256
525
780
753
2,704
796
Source:MOSL, Company
2 February 2016
4

Shree Cement
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2011
34,535
-4.9
8,848
25.6
6,758
2,091
1,753
1,251
-485
1,103
-994
-90.0
0
2,097
2,582
-63.6
2011
348
19,513
19,862
20,079
-723
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
47,806
38.4
13,865
29.0
7,133
6,732
1,878
1,471
-41
6,284
649
10.3
0
5,635
5,671
119.7
2012
348
26,991
27,339
16,611
-697
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
55,671
16.5
15,378
27.6
4,356
11,022
1,931
2,114
-11
11,194
1,155
10.3
0
10,040
10,049
77.2
2013
348
38,088
38,436
11,274
-938
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
58,759
5.5
13,784
23.5
5,499
8,285
1,292
1,964
154
9,111
1,238
13.6
0
7,872
7,739
-23.0
2014
348
46,760
47,109
10,783
-1,429
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
64,399
9.6
13,302
20.7
9,248
4,054
1,206
1,515
-355
4,008
-255
-6.4
0
4,263
4,640
-40.0
2015
348
52,416
52,764
8,200
-1,952
59,012
84,143
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
2016E
72,471
12.5
16,981
23.4
11,029
5,952
959
1,293
-262
6,023
288
4.8
0
5,735
5,984
29.0
2016E
348
55,895
56,243
8,200
-2,783
61,660
95,014
63,635
31,379
3,500
21,626
27,170
9,133
4,765
3,741
9,530
22,015
20,848
1,167
5,155
61,660
2017E
85,038
17.3
21,666
25.5
11,243
10,423
819
2,000
0
11,604
812
7.0
0
10,792
10,792
80.3
2017E
348
65,270
65,618
6,700
-3,711
68,606
100,514
74,878
25,636
7,000
21,626
39,221
10,018
5,126
13,593
10,484
24,877
23,298
1,579
14,345
68,606
(INR Million)
2018E
99,903
17.5
28,895
28.9
11,607
17,289
819
3,000
0
19,469
3,894
20.0
0
15,575
15,575
44.3
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
(INR Million)
2018E
348
79,226
79,574
5,200
-3,906
80,868
110,514
86,485
24,029
7,000
21,626
57,069
10,948
5,474
29,150
11,496
28,856
26,002
2,854
28,213
80,868
2 February 2016
5

Shree Cement
Financials and Valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2011
74.1
394.1
570.1
14.0
27.2
0.0
0.0
0.0
0.0
0.0
0.1
13.5
8.4
0.9
11
43
70
0.8
2011
8,848
1,251
-1,315
395
0
9,180
-8,525
655
3,958
0
-4,567
-482
-983
-1,753
-571
-3,789
823
4,164
4,987
2012
162.8
479.1
784.8
20.0
14.5
63.7
21.7
13.2
7.8
25.1
0.2
24.0
19.6
1.2
14
38
106
0.4
2012
13,865
1,471
6,173
-564
0
20,945
-4,350
16,594
-13,447
0
-17,798
2,617
-3,468
-1,878
-815
-3,544
-397
4,987
4,590
2013
288.5
441.3
1103.3
20.0
8.1
36.0
23.5
9.4
6.6
22.6
0.2
30.6
28.1
1.2
21
35
71
0.2
2013
15,378
2,104
-5,957
-2,198
0
9,326
-7,331
1,995
3,319
0
-4,012
1,867
-5,337
-1,931
-810
-6,211
-896
4,590
3,693
2014
222.2
427.5
1352.3
22.0
11.4
46.7
24.3
7.7
6.3
25.3
0.2
18.1
19.0
1.1
18
50
88
0.2
2014
13,784
2,118
990
-1,729
0
15,162
-15,869
-707
-411
0
-16,280
1,697
-491
-1,292
-897
-983
-2,101
3,694
1,592
2015
133.2
541.3
1514.6
24.0
22.8
77.9
19.2
6.8
5.7
26.3
0.2
9.3
9.4
1.1
27
52
103
0.1
2015
13,302
1,161
-1,253
-268
0
12,942
-14,879
-1,938
5,818
0
-9,062
2,364
-2,583
-1,206
-972
-2,398
1,482
1,593
3,075
2016E
171.8
641.6
1614.5
30.0
21.2
60.4
16.2
6.4
5.0
20.3
0.3
11.0
11.6
1.2
24
46
105
0.1
2016E
16,981
-3,110
2,922
-846
0
15,947
-8,371
7,576
-5,000
0
-13,371
0
0
-695
-1,214
-1,910
666
3,075
3,741
2017E
309.8
776.0
1883.6
35.0
13.1
33.5
13.4
5.5
4.2
15.4
0.3
17.7
18.2
1.3
22
43
100
-0.1
2017E
21,666
2,000
663
-1,741
0
22,589
-9,000
13,589
0
0
-9,000
0
-1,500
-819
-1,417
-3,736
9,852
3,741
13,593
2018E
447.1
901.4
2284.2
40.0
10.4
23.2
11.5
4.5
3.4
10.9
0.4
21.5
25.8
1.3
20
40
95
-0.3
Cash Flow Statement
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
(INR Million)
2018E
28,895
3,000
1,689
-4,089
0
29,496
-10,000
19,496
0
0
-10,000
0
-1,500
-819
-1,619
-3,939
15,557
13,593
29,150
2 February 2016
6

Shree Cement
Corporate profile
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.
Company description
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Promoter
DII
FII
Others
Sep-15
64.8
4.9
13.6
16.7
Jun-15
64.8
4.7
13.5
17.0
Sep-14
64.8
5.7
11.0
18.5
Exhibit 3: Top holders
Holder Name
FLT LIMITED
CARTICA CAPITAL LTD
UTI-Opportunities fund, UTI- Infrastructure
fund, UTI - Equity fund, UTI - Childrens
career bal.Plan
PINEBRIDGE INVESTMENTS GF MAURITIUS
LIMITED
NA
% Holding
10.3
2.1
1.6
1.4
0.0
Source: Capitaline
Note: FII Includes depository receipts
Source: Capitaline
Exhibit 4: Top management
Name
B G Bangur
H M Bangur
S S Khandelwal
Designation
Chairman
Managing Director
Company Secretary
Exhibit 5: Directors
Name
Leena Srivastava
O P Setia
RAMAKANT SHARMA
Shreekant Somany
Prashant Bangur
Name
Nitin Desai
R L Gaggar
Sanjiv Krishnaji Shelgikar
Y K Alagh
Source: Capitaline
Exhibit 6: Auditors
Name
B R Maheswari & Co
K G Goyal & Associates
P K Ajmera & Co
P Pincha & Associates
Type
Statutory
Statutory
Internal
Secretarial Audit
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
FY18
MOSL
forecast
199.4
327.0
464.0
Consensus
forecast
205.1
398.2
567.4
Variation (%)
-2.8
-17.9
-18.2
Source: Bloomberg
2 February 2016
7

Disclosures
This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be distributed by it and/or its
Shree Cement
affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or
inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to
you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into account the particular investment
objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek
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