Shree Cement – Q3FY24 Result Update

Sector Outlook – Positive
Shree Cement saw a successful quarter, with revenue growing 28.3% year-over-year to Rs. 5,223 crores. The company’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) rose 45.4% to Rs. 1,263 crores, thanks to a 15% decrease in fuel costs and a 9% rise in sales volume. 

They are working towards a 75 million tonnes capacity by 2027 and have recently started a 3.5 million tonnes plant. Additionally, they launched a 73 MW green power plant. Sales were highest in the north, followed by the east and south, with a reduced lead distance, indicating efficient operations.

Concall Highlights

Capacity Expansion:

• The company started a new plant in Nawalgarh, Rajasthan, which is one of the largest plants in the country.
• Another 3MT plant is likely to be commissioned in Q4FY24.
• The company targets a capacity of 75MT by March 2027 and 80MT by March 2028.
• The company’s capex plans up to March 2027 is approximately Rs. 12,500 crores. The company currently has cash reserves of Rs. 6,000 crores and it plans to fulfil the remaining requirement from internal accruals.

Energy and Power Cost:

• The company’s current energy capacity stands at 977MW which is quite close to 1GW.
• The company has commissioned a green power plant bearing a capacity of 73MT in January 2024 and another 133 MW capacity is expected to be commissioned in phases over 2024-2025.
• These additions shall take the total power capacity to 1,110MW, giving the company a power sufficiency of 65% from the current power sufficiency of 61%.
• South African vendors due to the Red Sea turmoil are unable to ship coal to European countries. As a result, they have started to offer coal to Indian consumers at a discounted international price. This shall benefit the company’s fuel cost as this will reduce the procurement cost and overall inventory cost.

Other Points:

• The company expects an overall cement demand growth of 8%.
• As the company increases its lending units in diverse geographical locations, the lead distance will start to fall.
• The company expects the logistics cost to remain steady.

Valuation and Outlook
Shree Cement had a strong quarter, outperforming market expectations. The company not only managed to increase sales and benefit from lower fuel costs but also reported a 77% capacity utilisation. 
It launched a 3.5MT plant and plans to expand further. With a new 73MW green power plant starting to impact in two months, fuel and power costs are expected to drop, improving operational efficiency. Shree Cement is working on reducing logistics costs and aims to rely 80-90% on its railway siding by 2027. 
With initiatives like the “Bangur Magna” campaign, the company anticipates demand growth of around 12% next year, staying optimistic about the future due to rising demand, falling fuel costs, and new capacity additions.