Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Shree Cement: A brief overview - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Shree Cement: A brief overview

Sep 5, 2007

Shree Cement, promoted by the Bangur group is North India's largest cement producer with installed capacity of almost 4 MT. The company, apart from being an efficient cement manufacturer, is the market leader in the north, with a market share of 16% within the region. It is also one amongst the least cost producer in India and is self sufficient in meeting its power requirement. Capacity and capacity utilisation
Currently, the company has four units, with a combined capacity of 5.6 MTPA. The company has undertaken an aggressive capital expenditure plan after having operated at over 100% capacity utilisation level since the last 4 fiscals. To cater to the increasing demand, the company increased its capacity from 2.7 MTPA in FY04 to 4.1 MTPA in FY07. Nevertheless, the demand overhand continued to pose a demand supply gap and the company operated at 116% capacity utilisation level in FY07. Cement being a fixed cost intensive industry improving capacity utilisation helps achieve economies of scale, which the company has rightly recognised.

What differentiates it?

  • Cost reduction efforts: The company's topline has grown at CAGR of almost 32% since FY03, which was more driven by cement demand and within the region. The company being one of the least cost producers in India has been enjoying operating margins over 20%. In the past 4 years the company's topline has grown by 32% while the costs grew by 20%. The company tried to improve its operating performance by curtailing costs. The company's continuous efforts to reduce costs by reducing energy consumed, by seeking alternative use of raw materials, and efficient logistics practices has led to operating costs growing at slower pace. The company increased its rail despatches on account of truck loading restrictions, increase in diesel prices etc. The company is self sufficient in meeting its power requirements and its thrust on improving energy consumption ahs brought down the power and fuel consumption. Further, the company has enough limestone reserves to meet its current and future requirements. Though the costs have gone up by almost 20% over the past 4 years on cost per tonne basis, in absolute terms the same have increased by merely 5% owing to the above mentioned factors and its proximity to markets. Improved realisations and efforts to curtail costs resulted in operating profits growing at a CAGR of almost 57% over the past 4 years.

  • High cash flows: Post FY04, with the demand inching closer to supply realisations improved. With the improved cash flows, the company undertook a debt reduction programme. The debt to equity ratio of the company came down to 0.8 times in FY05 from the highs of 1.1 times in FY03. However, in FY07 the debt to equity ratio of the company went up to 1.8 times as the company chalked out an aggressive expansion plan. On account of its operational efficiencies and optimal utilisation of funds with a judicious mix of rupee and fully hedged foreign currency loans, the company was able to lower its average interest costs by as much as 7.5%. All this enabled the company to increase shareholder value as the return on net worth (RONW) improved to 35% in FY07 (5% in FY06). Though the current growth is led by high realisations that may not be sustainable, one must also note that the company ahs been able to improve its physical performance, which is reflected by improved return on assets.

  • Expansion plans: Riding on the back of rise in demand, improved realisations and reduction in interest outgo, the company has been able to improve its overall performance. With the improvement in the financial position, the company plans to increase its capacity to 9 MTPA by the end of 2008.

  • Fares well against the heavyweights: When compared to Ambuja Cement, which is considered the least cost producer, Shree Cement fares well on cost front. The cost per tonne of production in FY07 for the company at stood Rs 1,576, while for Ambuja Cements the cost of production per tonne stood at RS 1,881. This indicates that it is one of the most profitable companies within the cement sector. However, one must note that going forward, the company needs to de risk its revenues geographically to maintain its current positions of being the least cost and most profitable cement producer.

What to expect?
At the current price of Rs 1,339, the stock is trading at an expensive valuation of over US$ 200 on the enterprise value per tonne (EV/tonne) basis as per FY07 numbers.

On the demand front, we expect the northern region to grow in line with the industry. North India is expected to witness demand growth rate of over 7%, driven in part by the forthcoming Commonwealth games, which will result in increased spending on infrastructure by the government. However, with the growth in the sector and waning demand supply gap, producers have lined up capacity expansion plans either by brownfield or greenfield expansion route.

However, once the lined up capacities come on stream, the industry is expected to face excess supply situation. Thus, while the near term scenario is favourable, from a long-term standpoint, risks outweigh rewards.

Equitymaster requests your view! Post a comment on "Shree Cement: A brief overview". Click here!


More Views on News

RAIN INDUSTRIES 2017-18 Annual Report Analysis (Annual Result Update)

Apr 16, 2019 | Updated on Apr 16, 2019

Here's an analysis of the annual report of RAIN INDUSTRIES for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of RAIN INDUSTRIES. Also includes updates on the valuation of RAIN INDUSTRIES.

AMBUJA CEMENT 2017-18 Annual Report Analysis (Annual Result Update)

Apr 8, 2019 | Updated on Apr 8, 2019

Here's an analysis of the annual report of AMBUJA CEMENT for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of AMBUJA CEMENT. Also includes updates on the valuation of AMBUJA CEMENT.

RAIN INDUSTRIES Announces Quarterly Results (3QFY19); Net Profit Down 140.5% (Quarterly Result Update)

Mar 5, 2019 | Updated on Mar 5, 2019

For the quarter ended December 2018, RAIN INDUSTRIES has posted a net profit of Rs 1 bn (down 140.5% YoY). Sales on the other hand came in at Rs 34 bn (up 9.5% YoY). Read on for a complete analysis of RAIN INDUSTRIES's quarterly results.

CCL INTERNATIONAL Announces Quarterly Results (3QFY19); Net Profit Down 75.9% (Quarterly Result Update)

Feb 22, 2019 | Updated on Feb 22, 2019

For the quarter ended December 2018, CCL INTERNATIONAL has posted a net profit of Rs 1 m (down 75.9% YoY). Sales on the other hand came in at Rs 97 m (down 5.1% YoY). Read on for a complete analysis of CCL INTERNATIONAL's quarterly results.

UltraTech: Ramping Up Efficiencies for the Acquired Plants (Quarterly Results Update - Detailed)

Nov 11, 2017

Higher depreciation and working capital at the acquired plants impacted the company's profitability.

More Views on News

Most Popular

Stocks that Could Be Out of Reach Post Elections(The 5 Minute Wrapup)

Apr 9, 2019

It's a matter of time before the stocks catch the fancy of the markets and big investors.

3 Indian Stocks with Amazon-Like Potential(Profit Hunter)

Apr 10, 2019

We have identified 3 stocks with huge wealth building potential which meet our 'Click of a Button' criteria.

This Company is Making a Big Comeback and You Can Now Profit from Its Example(The 5 Minute Wrapup)

Apr 10, 2019

How Dell got its mojo back.

This is Why the Stock of Jubilant FoodWorks Went Up 1,160%(The 5 Minute Wrapup)

Apr 12, 2019

This critical business strategy has enabled companies to scale their operations faster.

Pocketing Massive Gains with HDFC And HDFC Bank(Profit Hunter)

Apr 12, 2019

Here's how one could have generated gains of Rs 59,250 in 10 days by trading HDFC and HDFC Bank with a capital of Rs 4 lakh.


Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms