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Shree Cement: Yet another stellar quarter - Views on News from Equitymaster
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Shree Cement: Yet another stellar quarter
Oct 16, 2012

Shree Cement has announced its financial results for the quarter ended September 2012. During the quarter, the company has reported a rise of 55% YoY and 493% YoY in sales and net profits respectively. Here is our analysis of the results:

Performance summary
  • Revenues rise by 55% YoY during the quarter ended September 2012.
  • Operating profits surges by 97% YoY on account of decline in all cost heads barring power and fuel expenses.
  • Other income rises by 43% during the quarter, while depreciation charges decline by 42% YoY.
  • Healthy operating and non-operating performance cause net profits to increase by 493% YoY.

Financial performance snapshot
(Rs m) Jul-Sep 2011 Jul-Sep 2012 Change
Sales 8,520 13,238 55.4%
Expenditure 6,517 9,300 42.7%
Operating profit (EBDITA) 2,003 3,938 96.6%
Operating profit margin (%) 23.5% 29.7%  
Other income 204 292 43.4%
Depreciation 1,619 942 -41.9%
Interest 468 543 16.0%
Exceptional gains/(losses) (11) (10)  
Profit before tax 108 2,736 2435.3%
Tax (277) 454  
Profit after tax/(loss) 385 2,281 492.7%
Net profit margin (%) 4.5% 17.2%  
No. of shares (m) 34.8 34.8  
Diluted earnings per share (Rs)*   216.2  
P/E ratio (x)*   18.7  
*trailing twelve month earnings

What has driven performance in July-September 2012 quarter?
  • During the quarter ended September 2012, Shree Cement reported a rise of 55.4% YoY in the topline. While cement revenues rose by 40.1% YoY, power revenues (including inter segment revenue) rose by 211% YoY. Cement sales were higher as the capacity utilisation rate improved to about 90% during the quarter from around 70% in the corresponding September quarter of the previous year. Cement realisations also witnessed a 10% YoY hike. The growth in the power sector was on account of 285.7% YoY increase in the number of units despatched.

  • Operating profits reported a rise of 96.6% YoY during the quarter. All major cost heads except power and fuel costs witnessed a decline. Raw material costs, employee costs and freight & forwarding expenses declined by 3.1%, 1.6% and 2.2% respectively (as a percentage of net sales). Power and fuel costs, which account for 35.4% of the total operating cost, increased by 1.2% (as a percentage of net sales). Operating margins during the quarter stood at 29.7%, an improvement of 620 basis points (6.2%). It must be noted that while the power segment reported losses at the EBIT level in the corresponding quarter of the previous financial year, the segment reported a profit of Rs 602.2 m during the current quarter.

  • Other income rose by 43.4% YoY during the quarter. While interest expenses increased by 16% YoY, depreciation charges declined by 41.9% YoY.

  • Strong revenue growth, improvement in margins and lower depreciation resulted in a strong bottomline growth of 492.7% YoY. Net profit margins during the quarter stood at 17.2% against 4.5% in the previous year's quarter.

What to expect?
Though Shree Cement has reported strong performance during the quarter, it must be noted that the high growth is because of the low base in the corresponding quarter of the previous financial year. As such, the same kind of growth seems unlikely for the entire year.

At the current prices of Rs 4,049 the stock is trading at 18.7 times its trailing twelve month earnings. We believe that at the current level, the stock is trading at expensive valuations, with little room for significant gains. As such, we recommend a 'Sell' on the stock from a 2-3 year perspective.

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