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Shree Cem: Better volumes aid growth

May 22, 2012

Shree Cement has announced its financial results for the quarter and twelve months ended March 2012. During 4QFY12, the company has reported a rise of 38% YoY and 74% YoY in sales and net profits respectively. Here is our analysis of the results:

Performance summary
  • Revenues rise by 38% YoY during the quarter ended March 2012.
  • Higher cost of raw materials causes operating margins to decline from 27.7% in 4QFY11 to 25.2% in 4QFY12.
  • Other income rises by 275% during the quarter on account of courts deciding in favour of the company.
  • During the twelve month period ended March 2012, sales and net profits witness a rise of 32% YoY and 27% YoY respectively.

Financial performance snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Sales 10,701 14,778 38.1% 35,119 46,251 31.7%
Expenditure 7,740 11,048 42.7% 26,270 34,606 31.7%
Operating profit (EBDITA) 2,961 3,730 26.0% 8,848 11,644 31.6%
Operating profit margin (%) 27.7% 25.2%   25.2% 25.2%  
Other income 207 774 274.5% 1,251 1,308 4.6%
Depreciation 2,650 2,346 -11.5% 6,758 7,913 17.1%
Interest 519 411 -20.9% 1,753 1,874 6.9%
Exceptional gains/(losses) (343) (28)   (485) (123)  
Profit before tax (344) 1,719 - 1,103 3,042 175.7%
Tax (1,001) 576   (994) 373  
Profit after tax/(loss) 657 1,143 73.9% 2,097 2,670 27.3%
Net profit margin (%) 6.1% 7.7%   6.0% 5.8%  
No. of shares (m)       34.8 34.8  
Diluted earnings per share (Rs)*         76.6  
P/E ratio (x)*         33.4  
*trailing twelve month earnings

What has driven performance in 4QFY12?
  • During the quarter ended March 2012, Shree Cement reported a rise of 38.1% YoY in the topline. Cement volume sales increased by 30.4% YoY from 2.57 million tonnes (mt) in 4QFY11 to 3.35 mt in 4QFY12. Net realisations on cement were almost flat. During the quarter, cement revenues rose by 25.1% YoY. On the other hand, power revenues (including inter segment revenue) rose by 90.1% YoY.

  • Operating profits reported a rise of 26% YoY during the quarter. High raw material costs led the operating profit margins to drop from 27.7% in 4QFY11 to 25.2% in 4QFY12. The power business reported a loss of Rs 686.5 m in 4QFY12 at the operating level (EBIT).

  • Other income rose sharply during the quarter on account of certain judicial decisions in favour of the company. Both interest expenses and depreciation charges declined by 11.5% YoY and 20.9% YoY during the quarter.

  • At the bottomline level, net profits increased by 73.9% YoY as net margins increased from 6.1% in 4QFY11 to 7.7% in 4QFY12.

  • The company's board of directors has recommended a dividend of Rs 6 per share for the financial year 2011-12.

  • It must be noted that the company has decided to change its account period from 'period ending 31st March' to 'period ending 30th June. The current year will be extended by 3 months until June 2012. Hence, the current account year would be for a period of 15 months.

What to expect?
Shree Cement recorded good growth during the quarter ended March 2012 quarter. But it must be noted that the March quarter typically witnesses higher sales dispatches on account of robust construction activity during this period. Hence, the same is unlikely to continue going forward. The company is already experience slowdown in demand and weakening of prices.

At the current price of Rs 2,560 the stock is trading at 33.4 times its trailing twelve month earnings. We shall update our view on the stock very soon.

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