Shree Cement Ltd’s December quarter (Q3FY22) earnings had been fairly disappointing. Cement gross sales volumes fell by 8.3% year-on-year (y-o-y) to six.55 million tonnes, impacted by the strike by transporters in markets reminiscent of Chhattisgarh.
Price inflation meant standalone earnings earlier than curiosity, taxes, depreciation, and amortization (Ebitda) per tonne was the bottom up to now few quarters at ₹1,260. Greater gross sales of traded items, the place the corporate purchased thermal coal globally and offered to its subsidiary within the UAE, additionally weighed on its prices. So, its whole price per tonne spiked to a multi-quarter excessive of ₹4,162.
“Shree Cement has been the trade chief on prices, pushed by its early adoption of waste warmth restoration system, petroleum coke (as kiln gasoline), and break up grinding mannequin (saving freight price). Nonetheless, trade has been catching up quick with Shree Cement on these features, decreasing its price competitiveness,” analysts at Axis Securities Ltd mentioned in a report on 4 February. Towards this backdrop, the absence of any price discount programme would result in muted earnings progress, famous the home brokerage home.
All the cement sector is battling price inflation, however for Shree Cement a weak grip on prices would imply dropping its edge over friends. This might be a dampener for the inventory’s valuations. “For fairly a while, Shree Cement has loved the very best valuation a number of amongst listed cement shares, primarily due to its price management,” mentioned an analyst at a home brokerage home requesting anonymity.
The valuation hole between Ultratech Cement Ltd, which is the second most costly cement inventory, and Shree Cement has narrowed in latest quarters, the analyst mentioned. “Whereas Shree Cement is debt-free, Ultratech is on its monitor to be there quickly. So, if this development (elevated working price) doesn’t reverse, Ultratech may overtake Shree on the valuation entrance,” he mentioned. Ultratech goals to pare its total debt by FY23.
In the meantime, the consolidated FY23 EV/Ebitda a number of for Shree Cement and Ultratech is 16.93times and 15.57times, respectively, in accordance with Bloomberg information. EV is enterprise worth. Regardless of a wealthy a number of, Shree Cement inventory has been a laggard. Within the final one yr, Ultratech shares have risen by 20%, meaningfully overtaking Shree Cement, which declined by round 9% in the identical interval. Moreover price inflation, a priority for the inventory is a comparatively greater publicity to the East, a market going through oversupply, thus holding cement value progress muted within the area.
Supply: Live Mint