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Shree Cem: High input costs dent margins - Views on News from Equitymaster
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Shree Cem: High input costs dent margins
Aug 10, 2011

Shree Cement has announced its financial results for the quarter ended June 2011. During 1QFY12, the company has reported a rise of 9.5% YoY in sales and a decline of 48% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Revenues rise by 9.5% YoY during quarter ended June 2011. The rise has come in on the back of about 13% YoY increase in cement revenues.
  • Operating profits decline by 11% YoY as operating costs grow by 18% YoY.
  • The company reports a decline of 48% YoY in the net profits during the quarter.
  • Net profit margins decline from 11.2% in 1QFY11 to 5.3% in 1QFY12.

Financial performance snapshot
(Rs m) 1QFY11 1QFY12 Change
Sales 9,445 10,340 9.5%
Expenditure 6,550 7,749 18.3%
Operating profit (EBDITA) 2,895 2,591 -10.5%
Operating profit margin (%) 30.6% 25.1%  
Other income 168 1 -99.2%
Depreciation 1,509 1,598 5.9%
Interest 302 318 5.5%
Exceptional gains/(losses) (9) (83)  
Profit before tax 1,244 593 -52.3%
Tax 185 43 -76.6%
Profit after tax/(loss) 1,059 550 -48.1%
Net profit margin (%) 11.2% 5.3%  
No. of shares (m)   34.8  
Diluted earnings per share (Rs)*   45.6  
P/E ratio (x)*   37.7  
* trailing twelve month earnings

What has driven performance in 1QFY12?
  • During the quarter ended June 2011, Shree Cement reported a rise of 9.5% YoY in the topline. The rise was mainly attributable to the 12.7% YoY rise in cement revenues. However, the company witnessed 29.4% YoY decline in power revenues during the quarter. The cement segment reported a marginal 0.5% YoY increase in cement production to 2.41 m tonnes in 1QFY12. The company has not announced sales volumes.

  • Operating profits reported a 11% YoY during the quarter. This was because operating costs shot up by 18% YoY. Operating profit margins declined from 30.6% in 1QFY11 to 25.1% in 1QFY12. The power business reported a loss of Rs 797 m at the operating level (EBIT) because of high coking coal prices.

  • At the bottomline level, net profits declined by 48.1% YoY owing to high operating costs and lower other income. Net profit margins dropped from 11.2% in 1QFY11 to 5.3% in 1QFY12.

What to expect?

The cement industry continues to reel under the dual negatives of overcapacity and the slowdown in the construction industry. At the current price of Rs 1,720 the stock is trading at 37.7 times its trailing twelve month earnings. We maintain a "Hold" on the stock from a three year perspective.

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