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Shree Cement: Powerless performance - Views on News from Equitymaster
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Shree Cement: Powerless performance
Feb 9, 2011

Shree Cement has announced its 3QFY11 results. The company has reported a 20% YoY and 96% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues fall by 10% YoY during quarter ended December 2010. The decline has come in on the back of about 9% YoY drop in cement revenues and about 46% YoY drop in power revenues.
  • Operating profits decline by 53% YoY as operating costs grow by 17% YoY.
  • Higher depreciation, exceptional items and interest expenses drag the bottomline down by about 84% YoY.

    Financial performance snapshot
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Net sales 8,660 7,796 -10.0% 26,881 24,417 -9.2%
    Expenditure 5,298 6,221 17.4% 15,111 18,520 22.6%
    Operating profit (EBITDA) 3,363 1,575 -53.1% 11,770 5,897 -49.9%
    EBITDA margin 38.8% 20.2%   43.8% 24.2%  
    Other income 160 19 -88.4% 704 442 -37.2%
    Interest 125 204 62.9% 262 643 145.4%
    Depreciation 947 1,314 38.7% 2,918 4,108 40.8%
    Exceptional item 14 59 308.0% 85.6 142 66.1%
    Profit before tax/(loss) 2,436 18 -99.3% 9,208 1,447 -84.3%
    Tax 762 -257   1,734 7 23125.4%
    Profit after tax/(loss) 1,674 275 -83.6% 7,475 1,440 -80.7%
    Net margin 19.3% 3.5%   27.8% 5.9%  
    No of shares (m)         34.8  
    Adjusted Diluted EPS (Rs)*         40.7  
    P/E (times)*         37.5  
    *trailing twelve month earnings before exceptional items

    What has driven performance in 3QFY11?
    • Shree Cement reported a decline in topline by 10% YoY. The fall came on the back of 9.4% YoY decline in cement revenues and 46.2% YoY decline in power revenues. The cement segment has reported a marginal 3.8% YoY increase in cement production. The company has not announced sales volumes. However, we believe that lower realisations led to the poor performance of both the cement and power segment.

    • Operating profits reported a significant decline of 53.1% YoY. This is because operating costs grew at 17.4% YoY compared to a corresponding fall in topline. There was an 8.4% YoY rise in power and fuel cost (as a percentage of net sales) due to higher fuel prices. Operating profit margin declined by 18.6% YoY from 38.8% in 3QFY10 to 20.2% this quarter.

    • Profit before tax (PBT) fell by 99.3% YoY on account of poor performance at the operating level, higher depreciation, exceptional items and interest expenses. During the quarter and 9mFY11, the depreciation charge was high on account of commissioning of new 145 MW power plants. The net profit, which declined by 83.6%, was eased a bit by the tax credit that the company received during the quarter.

    • The board has declared an interim dividend of Rs 6 per share for FY11.

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