Shree Cement Q4 Review: Analysts Cut Target On Near-Term Cost Woes

Analysts cut target prices for Shree Cement Ltd. after it missed operating income estimates in the fourth quarter on higher-than-expected inflation, and lower volumes and pricing than peers.

Also, the cement maker’s valuations -- though corrected -- are still at a premium to the market leader UltraTech Cement Ltd.’s.

Net profit of the Kolkata-based company fell 16% year-on-year in the quarter ended March. Its Ebitda declined 22.9%, while operating margin contracted to 22.2% from 29.9%.

Shares of the company fell as much as 1.3% and are trading 0.7% lower as of 10:30 a.m. on Monday.

Of the 47 analysts tracking, 20 maintain a ‘buy’, 18 suggest a ‘hold’ and nine recommend a ‘sell’, according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 14.4%.

Here’s what analysts have to say about Shree Cement’s Q4 results.

Goldman Sachs:

• Maintains ‘neutral’; cuts target price to Rs 22,600 apiece from Rs 22,890.

• Shree Cement’s Q4 FY22 revenue/Ebitda below expectations, driven by lower volumes and lower pricing.

• Margin miss, cost pressure to persist in near term.

• Volumes/pricing were marginally below peers.

• A sequential increase in power and fuel costs hurt Shree Cement’s profitability, which declined by Rs 125 a tonne, compared to peers seeing an improvement in the quarter.

• Valuations for Shree Cement have corrected (now down to 14.1x FY24 EV/Ebitda, but still 2.0-2.5x premium to UltraTech Cement Ltd./Ambuja Cements Ltd.)

• Sees better fundamentals for UltraTech Cement.

• Expects Shree Cement’s underperformance to likely subside from hereon.

• The premium for ‘growth and higher profitability’ that Shree Cement had is unlikely to re-emerge in the near-term.

Emkay Securities

• Maintain ‘buy’, reduces target price to Rs 25,300 from Rs 26,450 apiece.

• Shree Cement’s standalone below consensus estimates owing to higher-than-expected cost inflation.

• Factoring in higher input cost inflation, cuts FY23-24 Ebitda estimates by 3-5%.

Citi

• Downgrades from ‘neutral’ to ‘sell’, cuts target price to Rs 20,000 from Rs 22,040 apiece.

• Q4 Ebitda fell 23% YoY due to cost pressures, muted volumes.

• Industry outlook may not support valuation premium.

• Adani buying Ambuja/ACC, a near-term price war may be averted as they will likely retain the ACC/Ambuja brands.

• Industry pricing should remain muted amid ongoing east expansions and as Adani’s plans to double capacity could propel other large players to accelerate growth.

• Shree Cement trades at 16.5x 1-yearr forward consensus EV/Ebitda and $210 EV/tonne.

• Valuations should be more in line with UltraTech versus current 20% EV/Ebitda premium.

• Expects Shree Cement’s FY22-24 Ebitda CAGR at 15%, UltraTech at 17%.

• UltraTech may have a geographic advantage—east should account for 32% of Shree Cement’s capacity by FY24 vs 20% for UltraTech.