Shree Cement (NS:): We maintain our REDUCE rating on Shree Cement, with an unchanged SOTP target price of INR 22,600/share. In Q4FY23, Shree reported 10/10% YoY/QoQ volume growth. Cement NSR remained flat QoQ. Op-lev gains, increased green power usage, and higher contribution of non-cement revenue drove blended unit EBITDA expansion by INR 130/MT QoQ to INR 1,101. Shree is targeting ~13% volume growth in FY24 and it is also confident of margin expansions, mainly due to energy cost reduction. Shree would be expanding its capacity to 56/80mn MT by FY25/2030E (vs 46mn MT in FY23).
Somany Ceramics Ltd (NS:): We maintain BUY on Somany Ceramics (SOMC), with a revised target price of INR 730/share (12x Mar-25E consolidated EBITDA, implying 26x P/E). In Q4FY23, SOMC reported healthy 9/9% YoY/QoQ tiles volume growth. Even margin expanded 246/77bps QoQ/YoY to 9% on reducing gas prices. It expects to deliver 10%+ volume growth in FY24E (benefits of its strengthening distribution) and 9.5-10% EBITDA margin (gas price tailwinds and favourable product mix). It will commission a large-sized tiles plant in Gujarat (4.5MSM capacity in H1FY24E end), which will also bolster product mix and margin.
Shree Cement
Op-lev gains drive margin expansion QoQ
We maintain our REDUCE rating on Shree Cement, with an unchanged SOTP target price of INR 22,600/share. In Q4FY23, Shree reported 10/10% YoY/QoQ volume growth. Cement NSR remained flat QoQ. Op-lev gains, increased green power usage, and higher contribution of non-cement revenue drove blended unit EBITDA expansion by INR 130/MT QoQ to INR 1,101. Shree is targeting ~13% volume growth in FY24 and it is also confident of margin expansions, mainly due to energy cost reduction. Shree would be expanding its capacity to 56/80mn MT by FY25/2030E (vs 46mn MT in FY23).
Q4FY23 performance: Shree’s standalone EBITDA missed ours/consensus estimates by 5% each. Cement volume rose 10% QoQ/YoY each to 8.8mn MT. Utilisation improved to 76% vs 69/69% QoQ/YoY. Shree continues to sell ~80% in the trade segment. While pure cement NSR stood flat QoQ (+2% YoY), the reported blended NSR went up 7% QoQ on higher other operating revenue. The company noted flattish fuel costs QoQ while it benefitted from a 160bps QoQ increase in green power sales to 55%, which along with op-lev gains and increased contribution from other revenues drove up unit EBITDA by INR 130/MT QoQ to INR 1,011. Depreciation further increased by 7% QoQ (after 14% QoQ in Q3) on account of the capitalization of solar power plants.
Con call updates and outlook: During Q4/FY23, the company added 38/122MW of solar power. Its cement SGU in WB and IUs in Rajasthan and Guntur are expected by Q1FY24, Q3FY24 and Q2FY25 respectively. It spent INR 33bn in Capex in FY23 and would spend INR 33-35bn in FY24E. The ongoing expansions will increase capacity to 55mn MT in FY25 and Shree remains firm on expanding to 80mn MT by 2030. It guided 13% volume growth for FY24E and it is also looking at major cost tailwinds as fuel prices are correcting. It is also increasing its green energy consumption and is targeting to double its premium cement sales share to 15% over the next four quarters. We have broadly maintained our estimates for FY24/25E. The UAE subsidiary continues to deliver poor profitability. We maintain our REDUCE rating on Shree, with an unchanged SOTP target price of INR 22,600/share, valuing its standalone cement business at 16.5x Mar-25E EBITDA and the UAE business at 1x BV.
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