Results Review

INDIA
CEMENT
10 November 2014

BUY

Shree Cement

TP: INR 10,000.00

8.2%

SRCM IN

Tepid quarter but still outdoes peers BUY

SRCMs Q1FY15 EBITDA/t of Rs 820 missed estimates (Rs 1,010) due to lower
realisations (+9% YoY vs. +17% est.) and higher costs. This coupled with higher
depreciation and weaker other income saw PAT drop 33% YoY to Rs 1.2bn.
Nonetheless, both volume growth (+19% YoY) and profitability remain ahead of
peers, and we expect SRCM to see improving utilisation in its core markets. We
pare margin estimates, raise our target EV/EBITDA multiple from 10.5x to 11x in
line with large-cap peers, and roll over to Dec15 TP of Rs 10,000 (from Rs 8650).
Strong volume growth but realisations subdued: SRCM reported robust topline
growth of 29% YoY to Rs 16bn led by 30% growth in cement sales and a 19%
increase in power sales (power volumes up 17% YoY). Cement revenue growth was
led by higher volumes (+19% YoY on higher capacity), while realisations grew ~9%
YoY. On a QoQ basis, cement realisations fell by 9% (-3% est.).
Cement EBITDA/t falls short still best-in-class: SRCMs reported cement EBITDA/t
improved by Rs 145 YoY but fell by Rs 350 QoQ to Rs 820 (ex-power profits of ~Rs
210mn), short of our estimate of Rs 1,010/t. EBITDA margin for the quarter stood at
21% vs. 23.9% expected. A higher-than-expected fall in realisation and increase in
cost QoQ led to the lower profitability. While power & fuel cost/t increased 3%, other
expense/t increased 6% QoQ (freight cost/t down by 4% QoQ). Higher depreciation at
Rs 2.2bn on increased capacity (Rs 1.7bn estimated), lower other income and softer
margins saw adj. PAT decline 33% YoY to Rs 1.2bn (Rs 1.9bn est.).
Maintain BUY, TP Rs 10,000: While we lower our FY15/FY16 EBITDA estimates by
4%/2% to account for lower margins, we restate BUY as (a) planned expansion along
with regional diversification should drive a revenue/EBITDA CAGR of 20%/29% for
SRCM over FY14-FY17, and (b) cost efficiency coupled with a strong balance sheet will
continue to cushion investor confidence. Our Dec15 TP of Rs 10,000 is set at 11x oneyear fwd EV/EBITDA from 10.5x earlier, in line with large-cap peer valuations.

REPORT AUTHORS

Mihir Jhaveri
+91 22 6766 3459
[email protected]

Prateek Kumar
+91 22 6766 3435
[email protected]

PRICE CLOSE (10 Nov 14)

INR 9,240.00
MARKET CAP

INR 321.9 bln

USD 5.2 bln
SHARES O/S

34.8 mln
FREE FLOAT

35.2%
3M AVG DAILY VOLUME/VALUE

0.0 mln / USD 2.7 mln

52 WK HIGH

52 WK LOW

INR 9,292.00

INR 4,100.10

Financial Highlights
Y/E 30 Jun

FY13A

FY14A

FY15E

FY16E

FY17E

Revenue (INR mln)

55,671

58,759

72,708

87,217

100,253

EBITDA (INR mln)

15,378

13,784

17,668

22,948

29,315

500

Adjusted net profit (INR mln)

10,050

7,718

8,206

11,459

15,586

400

288.5

221.5

235.5

328.9

447.3

300

Adjusted EPS growth (%)

68.9

(23.2)

6.3

39.6

36.0

DPS (INR)

20.0

22.0

22.0

22.0

22.0

ROIC (%)

43.9

21.2

19.8

26.2

33.4

Adjusted ROAE (%)

30.6

18.0

15.8

18.1

19.9

Adjusted P/E (x)

32.0

41.7

39.2

28.1

20.7

EV/EBITDA (x)

20.1

22.2

17.5

13.1

9.9

8.4

6.8

5.7

4.6

3.7

Adjusted EPS (INR)

P/BV (x)

(%)

Stock Price

Index Price

200
100
0

Source: Company, Factset, RCML Research

This report has been prepared by Religare Capital Markets Limited or one of its affiliates. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of
this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public appearances, and
trading securities held by a research analyst account.

BUY

Shree Cement

TP: INR 10,000.00

8.2%

SRCM IN

Results Review
INDIA
CEMENT

Result highlights
Fig 1 - Actual vs. estimated performance
(Rs mn)

Actual

Net sales

16,053

15,676

2.4

16,100

(0.3)

EBITDA

3,376

3,741

(9.8)

3,633

(7.1)

EBITDA margins
Adjusted PAT
Adjusted FDEPS (Rs)

Estimates % Variance Consensus % Variance

21.0

23.9

(283bps)

22.6

(153bps)

1,155

1,928

(40.1)

1,818

(36.5)

33.2

55.4

(40.1)

52.2

(36.5)

EBITDA margin dip below estimates

Source: RCML Research

Fig 2 - Quarterly performance

(Rs mn)

Q1FY15

Q1FY15

% Chg YoY

Q4FY14

% Chg QoQ

Revenue

16,053

12,475

28.7

16,514

(2.8)

Expenditure

12,677

9,981

27.0

12,179

4.1

Operating profit

3,376

2,494

35.4

4,335

(22.1)

Other income

309

740

(58.2)

568

(45.6)

Interest

350

312

12.1

308

13.7

Depreciation

2,227

1,139

95.5

1,538

44.7

PBT

1,109

1,783

(37.8)

3,057

(63.7)

Tax

(47)

50

(193.0)

542

(108.6)

1,155

1,733

(33.3)

2,515

(54.1)

EBITDA margin (%)

21.0

20.0

104bps

26.2

(522bps)

EPS (Rs)

33.2

49.7

(33.3)

72.2

(54.1)

FY13

FY14

FY15E

FY16E

FY17E

(16.2)

14.4

13.0

14.0

14.0

1.5

1.0

5.0

6.0

6.0

1,066

895

1,030

1,177

1,352

Adjusted PAT

Topline up 29% YoY as cement sales

grew 30% (cement vols. +19%;
realisation +9% YoY), and power sales
grew 19% (power vols. up 17% YoY)
Cement EBITDA/t at ~Rs 820
(Rs 1,010 RCMLe)

Source: Company, #June ending company

Fig 3 - Model assumptions

Volume growth%
Realisation growth %
Cement EBITDA/t (Rs)
Source: Company, RCML Research

Fig 4 - Revised estimates

Key parameters

FY15E

(Rs mn)

Old

New

Revenue

70,674

EBITDA

18,404

Old

New

72,708

2.9

84,802

17,668

(4.0)

23,472

26.0

24.3

(174bps)

10,964

8,206

314.7

235.5

EBITDA margin (%)

Net profit
FDEPS (Rs)

FY16E
% Chg

FY17E
% Chg

Old

New

% Chg

87,217

2.8

100,253

22,948

(2.2)

29,315

27.7

26.3

(137bps)

29.2

(25.2)

14,175

11,459

(19.2)

15,586

(25.2)

406.9

328.9

(19.2)

447.3

Source: Company, RCML Research

10 November 2014

Page 2 of 5

BUY

Shree Cement

TP: INR 10,000.00

8.2%

SRCM IN

Results Review
INDIA
CEMENT

Per Share Data

Y/E 30 Jun (INR)

FY13A

FY14A

FY15E

FY16E

FY17E

Reported EPS

288.2

226.0

235.5

328.9

447.3

Adjusted EPS

288.5

221.5

235.5

328.9

447.3

20.0

22.0

22.0

22.0

22.0

1,103.2

1,352.1

1,630.8

2,002.9

2,493.4

FY13A

FY14A

FY15E

FY16E

FY17E

5.6

5.2

4.2

3.4

2.9

EV/EBITDA

20.1

22.2

17.5

13.1

9.9

Adjusted P/E

32.0

41.7

39.2

28.1

20.7

8.4

6.8

5.7

4.6

3.7

FY13A

FY14A

FY15E

FY16E

FY17E

EBITDA margin

27.6

23.5

24.3

26.3

29.2

EBIT margin

19.8

14.1

13.2

15.6

18.6

Adjusted profit margin

18.1

13.1

11.3

13.1

15.5

Adjusted ROAE

30.6

18.0

15.8

18.1

19.9

ROCE

21.4

13.5

12.9

15.2

17.3

DPS
BVPS

Valuation Ratios
Y/E 30 Jun (x)
EV/Sales

P/BV

Financial Ratios
Y/E 30 Jun
Profitability & Return Ratios (%)

YoY Growth (%)

Revenue

(3.8)

5.5

23.7

20.0

14.9

EBITDA

(10.1)

(10.4)

28.2

29.9

27.7

Adjusted EPS

68.9

(23.2)

6.3

39.6

36.0

Invested capital

48.1

50.3

2.4

8.1

4.6

Receivables (days)

18

21

16

13

13

Inventory (days)

47

54

45

33

33

Payables (days)

15

16

23

29

34

Current ratio (x)

1.9

1.4

1.5

1.5

1.5

Quick ratio (x)

0.4

0.1

0.3

0.4

0.5

Gross asset turnover

1.0

0.9

0.9

0.9

0.9

Total asset turnover

0.9

0.9

0.9

0.9

0.9

Net interest coverage ratio

5.7

6.4

5.6

7.4

11.2

Adjusted debt/equity

0.2

0.2

0.1

0.1

0.0

FY13A

FY14A

FY15E

FY16E

FY17E

89.7

86.2

84.0

83.0

82.0

101.7

108.1

101.4

101.7

102.1

EBIT margin (EBIT/Revenue)

19.8

14.1

13.2

15.6

18.6

Asset turnover (Revenue/Avg TA)

91.8

87.1

91.1

92.8

90.9

184.5

157.7

153.5

148.4

140.8

30.6

18.0

15.8

18.1

19.9

Working Capital & Liquidity Ratios

Turnover & Leverage Ratios (x)

DuPont Analysis
Y/E 30 Jun (%)
Tax burden (Net income/PBT)
Interest burden (PBT/EBIT)

Leverage (Avg TA/Avg equities)

Adjusted ROAE

10 November 2014

Page 3 of 5

BUY

Shree Cement

TP: INR 10,000.00

8.2%

SRCM IN

Results Review
INDIA
CEMENT

Income Statement
Y/E 30 Jun (INR mln)

FY13A

FY14A

FY15E

FY16E

FY17E

Total revenue

55,671

58,759

72,708

87,217

100,253

EBITDA

15,378

13,784

17,668

22,948

29,315

EBIT

11,022

8,285

9,631

13,575

18,612

Net interest income/(expenses)

(1,931)

(1,292)

(1,725)

(1,833)

(1,669)

2,114

1,964

1,864

2,064

2,064

EBT

11,205

8,957

9,769

13,806

19,007

Income taxes

(1,155)

(1,238)

(1,563)

(2,347)

(3,421)

(11)

154

10,040

7,872

8,206

11,459

15,586

Other income/(expenses)
Exceptional items

Extraordinary items
Min. int./Inc. from associates
Reported net profit
Adjustments
Adjusted net profit

11

(154)

10,050

7,718

8,206

11,459

15,586

Balance Sheet
Y/E 30 Jun (INR mln)

FY13A

FY14A

FY15E

FY16E

FY17E

Accounts payables

1,443

2,613

4,382

5,974

7,141

Other current liabilities

6,517

5,068

5,068

5,068

5,068

Provisions

1,050

1,186

2,690

3,474

4,548

Debt funds

9,774

10,783

10,783

10,783

8,783

Other liabilities

4,382

6,529

6,529

6,529

6,529

348

348

348

348

348

Reserves & surplus

38,088

46,760

56,470

69,432

86,521

Shareholders' fund

38,437

47,109

56,818

69,780

86,869

Total liabilities and equities

61,601

73,287

86,269

101,607

118,938

Cash and cash eq.

3,694

1,593

4,314

5,943

7,968

Accounts receivables

3,439

3,309

2,988

3,345

3,571

Inventories

5,305

8,098

5,579

6,163

6,802

Other current assets

7,040

6,892

7,030

7,171

7,314

Investments

22,033

22,444

28,444

36,444

47,444

Net fixed assets

17,819

21,938

36,486

41,113

44,410

1,333

7,585

938

1,429

1,429

1,429

1,429

Equity capital

CWIP
Intangible assets
Deferred tax assets, net
Other assets

Total assets

61,601

73,287

86,269

101,607

118,938

Y/E 30 Jun (INR mln)

FY13A

FY14A

FY15E

FY16E

FY17E

Net income + Depreciation

14,396

13,372

16,243

20,832

26,288

1,931

1,292

1,725

1,833

1,669

Changes in working capital

(644)

1,187

4,471

510

159

Other operating cash flows

(3,086)

(1,843)

2,416

1,904

2,194

Cash flow from operations

12,597

14,007

24,855

25,079

30,311

Capital expenditures

(8,971)

(15,846)

(15,000)

(14,000)

(14,000)

4,579

208

(6,000)

(8,000)

(11,000)

Other investing cash flows

716

1,088

1,080

1,280

1,280

Cash flow from investing

(3,676)

(14,550)

(19,920)

(20,720)

(23,720)

Cash Flow Statement

Interest expenses
Non-cash adjustments

Change in investments

Equities issued

Debt raised/repaid

(8,761)

(894)

(2,000)

Interest expenses

(2,236)

(1,465)

(1,725)

(1,833)

(1,669)

Dividends paid

(690)

(895)

(489)

(897)

(897)

Other financing cash flows

1,871

1,697

Cash flow from financing

(9,817)

(1,558)

(2,214)

(2,730)

(4,565)

Changes in cash and cash eq

(896)

(2,101)

2,721

1,629

2,025

Closing cash and cash eq

3,694

1,593

4,314

5,943

7,968

10 November 2014

Page 4 of 5

RESEARCH DISCLAIMER

Important Disclosures
This report was prepared, approved, published and distributed by a Religare Capital Markets
(RCM) group company located outside of the United States (a non-US Group Company). This
report is distributed in the U.S. by Enclave Capital LLC (Enclave Capital), a U.S. registered broker
dealer, on behalf of RCM only to major U.S. institutional investors (as defined in Rule 15a-6 under the
U.S. Securities Exchange Act of 1934 (the Exchange Act)) pursuant to the exemption in Rule 15a-6
and any transaction effected by a U.S. customer in the securities described in this report must be
effected through Enclave Capital. Neither the report nor any analyst who prepared or approved the
report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc.
(FINRA) or other regulatory requirements pertaining to research reports or research analysts. No
non-US Group Company is registered as a broker-dealer under the Exchange Act or is a member of
the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization.
Subject to any applicable laws and regulations at any given time, non-US Group Companies, their
affiliates or companies or individuals connected with RCM (together, Connected Companies) may
make investment decisions that are inconsistent with the recommendations or views expressed in this
report and may have long or short positions in, may from time to time purchase or sell (as principal or
agent) or have a material interest in any of the securities mentioned or related securities or may have
or have had a business or financial relationship with, or may provide or have provided investment
banking, capital markets and/or other services to, the entities referred to herein, their advisors and/or
any other connected parties. Any particular arrangements or relationships are disclosed below. As a
result, recipients of this report should be aware that Connected Companies may have a conflict of
interest that could affect the objectivity of this report.
See Special Disclosures for certain additional disclosure statements, if applicable.
This report is only for distribution to investment professionals and institutional investors.
Analyst Certification
Each of the analysts identified in this report certifies, with respect to the companies or securities that
the individual analyses, that (1) the views expressed in this report reflect his or her personal views
about all of the subject companies and securities and (2) no part of his or her compensation was, is
or will be directly or indirectly dependent on the specific recommendations or views expressed in this
report.
Analysts and strategists are paid in part by reference to the profitability of RCM which includes
investment banking revenues.
Stock Ratings are defined as follows
Recommendation Interpretation (Recommendation structure changed with effect from March 1, 2009)
Recommendation
Buy
Hold
Sell

Expected absolute returns (%) over 12 months

More than 15%
Between 15% and 5%
Less than 5%

Expected absolute returns are based on the share price at market close unless otherwise stated.
Stock recommendations are based on absolute upside (downside) and have a 12-month horizon. Our
target price represents the fair value of the stock based upon the analysts discretion. We note that
future price fluctuations could lead to a temporary mismatch between upside/downside for a stock
and our recommendation.
Stock Ratings Distribution
As of 1 November 2014, out of 208 rated stocks in the RCM coverage universe, 121 have BUY ratings
(including 6 that have been investment banking clients in the last 12 months), 60 are rated HOLD and
27 are rated SELL.
Research Conflict Management Policy
RCM research has been published in accordance with our conflict management policy, which is
available here.
Disclaimers
This report is not directed to, or intended for distribution to or use by, any person or entity who is a
citizen or resident of or located in any locality, state, country or other jurisdiction where such
distribution, publication, availability or use would be contrary to law or regulation or which would
subject RCM to any registration or licensing requirement within such jurisdiction(s). This report is
strictly confidential and is being furnished to you solely for your information. All material presented in
this report, unless specifically indicated otherwise, is under copyright to RCM. None of the material,
its content, or any copy of such material or content, may be altered in any way, transmitted, copied or
reproduced (in whole or in part) or redistributed in any form to any other party, without the prior
express written permission of RCM. All trademarks, service marks and logos used in this report are
trademarks or service marks or registered trademarks or service marks of RCM or its affiliates, unless
specifically mentioned otherwise.

ensure that the securities referred to in this report are suitable for any particular investor. RCM will
not treat recipients as its customers by virtue of their receiving the report. The investments or
services contained or referred to in this report may not be suitable for you and it is recommended that
you consult an independent investment advisor if you are in doubt about such investments or
investment services. In addition, nothing in this report constitutes investment, legal, accounting or tax
advice or a representation that any investment or strategy is suitable or appropriate to your individual
circumstances or otherwise constitutes a personal recommendation to you.
Information and opinions presented in this report were obtained or derived from sources that RCM
believes to be reliable, but RCM makes no representations or warranty, express or implied, as to their
accuracy or completeness or correctness. RCM accepts no liability for loss arising from the use of the
material presented in this report, except that this exclusion of liability does not apply to the extent that
liability arises under specific statutes or regulations applicable to RCM. This report is not to be relied
upon in substitution for the exercise of independent judgment. RCM may have issued, and may in the
future issue, a trading call regarding this security. Trading calls are short term trading opportunities
based on market events and catalysts, while stock ratings reflect investment recommendations based
on expected absolute return over a 12-month period as defined in the disclosure section. Because
trading calls and stock ratings reflect different assumptions and analytical methods, trading calls may
differ directionally from the stock rating.
Past performance should not be taken as an indication or guarantee of future performance, and no
representation or warranty, express or implied, is made regarding future performance. Information,
opinions and estimates contained in this report reflect a judgment of its original date of publication by
RCM and are subject to change without notice. The price, value of and income from any of the
securities or financial instruments mentioned in this report can fall as well as rise. The value of
securities and financial instruments is subject to exchange rate fluctuation that may have a positive or
adverse effect on the price or income of such securities or financial instruments. Investors in
securities such as ADRs, the values of which are influenced by currency volatility, effectively assume
this risk.
This report is distributed in India by Religare Capital Markets Limited, which is a registered
intermediary regulated by the Securities and Exchange Board of India. In Dubai, it is being
distributed by Religare Capital Markets (Hong Kong) Limited (Dubai Branch) which is licensed and
regulated by the Dubai Financial Services Authority. In Singapore, it is being distributed (i) by
Religare Capital Markets (Singapore) Pte. Limited (RCMS) (Co. Reg. No. 200902065N) which is
a holder of a capital markets services licence and an exempt financial adviser in Singapore and (ii)
solely to persons who qualify as institutional investors or accredited investors as defined in
section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (the SFA). Pursuant to
regulations 33, 34, 35 and 36 of the Financial Advisers Regulations (the FAR), sections 25, 27 and
36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to RCMS when providing
any financial advisory service to an accredited investor, or overseas investor (as defined in
regulation 36 of the FAR). Persons in Singapore should contact RCMS in respect of any matters
arising from, or in connection with this publication/communication. In Hong Kong, it is being
distributed by Religare Capital Markets (Hong Kong) Limited (RCM HK), which is licensed and
regulated by the Securities and Futures Commission, Hong Kong. In Australia, it is being distributed
by RCMHK which is approved under ASIC Class Orders. In Sri Lanka, it is being distributed by
Bartleet Mallory Stockbrokers, which is licensed under Securities and Exchange Commission of
Sri Lanka. If you wish to enter into a transaction please contact the RCM entity in your home
jurisdiction unless governing law provides otherwise. In jurisdictions where RCM is not registered or
licensed to trade in securities, transactions will only be effected in accordance with applicable
securities legislation which may vary from one jurisdiction to another and may require that the trade
be made in accordance with applicable exemptions from registration or licensing requirements.
Religare Capital Markets does and seeks to do business with companies covered in our research
report. As a result, investors should be aware that the firm may have a conflict of interest that could
affect the objectivity of research produced by Religare Capital Markets. Investors should consider
our research as only a single factor in making their investment decision.
Any reference to a third party research material or any other report contained in this report represents
the respective research organization's estimates and views and does not represent the views of RCM
and RCM, its officers, employees do not accept any liability or responsibility whatsoever with respect
to its accuracy or correctness and RCM has included such reports or made reference to such reports
in good faith. This report may provide the addresses of, or contain hyperlinks to websites. Except to
the extent to which the report refers to material on RCMs own website, RCM takes no responsibility
whatsoever for the contents therein. Such addresses or hyperlinks (including addresses or
hyperlinks to RCMs own website material) is provided solely for your convenience and information
and the content of the linked site does not in any way form part of this report. Accessing such
website or following such link through this report or RCMs website shall be at your own risk.
Special Disclosures (if applicable)
Not Applicable

The information, tools and material presented in this report are provided to you for information
purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or
to buy or subscribe for securities or other financial instruments. RCM has not taken any steps to

10 November 2014

Page 5 of 5