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Shree Cem: Hit by muted sales, high input costs - Views on News from Equitymaster

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Shree Cem: Hit by muted sales, high input costs

Jun 1, 2011

Shree Cement has announced its financial results for the quarter and year ended March 2011. During FY11, the company has reported a 3% YoY and 69% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues rise by 13% YoY during quarter ended March 2011. The rise has come in on the back of about 7% YoY increase in cement revenues and about 56% YoY increase in power revenues.
  • Operating profits decline by 9% YoY as operating costs grow by 25% YoY.
  • During the quarter, the company reports a loss at the Profit before Tax (PBT) level.
  • During FY11, the company’s sales and net profits decline by 3% YoY and 69% YoY respectively.

    Financial performance snapshot
    (Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
    Net sales 9,440 10,701 13.4% 36,321 35,119 -3.3%
    Expenditure 6,185 7,742 25.2% 21,296 26,262 23.3%
    Operating profit (EBITDA) 3,255 2,959 -9.1% 15,025 8,856 -41.1%
    EBITDA margin 34.5% 27.7%   41.4% 25.2%  
    Other income 54 25 -53.2% 758 468 -38.3%
    Interest 504 336 -33.4% 766 978 27.7%
    Depreciation 2786 2,650 -4.9% 5,704 6,758 18.5%
    Exceptional item 549 343 -37.6% 634 485 -23.6%
    Profit before tax/(loss) -529 -344 -35.0% 8,679 1,103 -87.3%
    Tax 185 -1001   1918 -994 -
    Profit after tax/(loss) -714 657 - 6,761 2,097 -69.0%
    Net margin - 6.1%   18.6% 6.0%  
    No of shares (m)         34.8  
    Diluted EPS (Rs)*         60.2  
    P/E (times)*         30.0  

    What has driven performance in FY11?
    • During the financial year ended March 2011, Shree Cement reported a decline in topline by 3.3% YoY. The fall came on the back of 7.5% YoY decline in cement revenues. However, the company witnessed 5.4% YoY rise in power revenues. The cement segment reported a marginal 0.6% YoY increase in cement production to 9.4 m tonnes in FY11. The company has not announced sales volumes. However, we believe that lower realisations led to the poor performance of the cement segment.

    • Operating profits reported a significant decline of 41.1% YoY. This was because operating costs grew at 23.3% YoY in addition to the fall in topline. There was a 9.4% YoY rise in power and fuel cost (as a percentage of net sales) due to higher coking coal prices. Operating profit margin declined by 16.1% YoY from 41.4% in FY10 to 25.2% in FY11.

    • Profit before tax (PBT) fell by 87.3% YoY on account of poor performance at the operating level and higher interest and depreciation charges. The net profit, which declined by 69%, was cushioned a bit by the tax credit that the company received during the year.

    • The board declared an interim dividend of Rs 8 per share for FY11 (dividend yield of 0.4%).

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