Shree Cement (SHRCEM) : Strong Growth Visibility

Result Update
November 18, 2014

Rating matrix
Rating
Target
Target Period
Potential Upside
:
:
:
:
Shree Cement (SHRCEM)
Hold
| 9850
12-15 months
9%
Strong growth visibility
Whats Changed?
Target
EPS FY15E
EPS JY16E
EPS FY17E
Rating
Changed from | 8600 to | 9850

Changed from |288.7 to |277.7
Changed from |384.4 to |376.4
Introduced at | 418.5
Unchanged
Quarterly Performance
Revenue
EBITDA
EBITDA (%)
PAT
Q1FY15
1,608.1
340.4
21.2
108.8
Q1FY14
1,247.5
249.4
20.0
172.2
YoY (%)
28.9
18.7
118 bps
-36.8
Q4FY14 QoQ (%)

1,656.7
-2.9
438.8
-22.4
26.5 -532 bps
277.0
-60.7
JY14
JY15E
JY16E
JY17E
Net Sales
5887.3
6999.7
8451.7
9547.6
EBITDA
1389.8
1752.7
2266.4
2543.1
787.2
960.2
1310.0
1456.3
248.6
277.7
376.4
418.5
JY17E
Adjusted PAT
Adjusted EPS (|)
Valuation summary
JY14
JY15E
JY16E
PE (x)
40.5
33.2
24.3
21.9
Target PE (x)
39.0
34.9
25.8
23.2
EV to EBITDA (x)
23.6
18.5
14.2
12.5
EV/Tonne(US$)**
276
252
205
203
Price to book (x)
6.8
5.7
4.7
4.1
RoNW (%)
16.7
17.2
19.2
18.8
RoCE (%)
13.0
13.9
16.6
17.1
** adjusted for cement business
Stock data
Amount
| 31884 crore
Particular
Mcap
| 1731 crore
Debt (FY14)
| 884 crore
Cash & Invest (FY14)

EV
| 32,731 crore
52 week H/L
| 9297 / 4100
Equity cap
| 34.8 crore
Face value
| 10
Price performance (%)

ACC
Ambuja Cement
Shree Cements net profitability for Q1FY15 (June year ending)

declined 36.8% YoY mainly due to higher depreciation charge (with
respect to new commissioning of new plants) and lower other
income. However, sales growth remained healthy in the quarter due
to better sales volumes growth in the cement and power segments
Cement revenues grew 30.5% to | 1418.4 crore (volumes up 18.6%
YoY to 3.8 MT, realisation was up 10.0% YoY to | 3736/tonne).
Power segment revenues grew 18.3% YoY to | 189.7 crore led by
17.0% YoY growth in volumes and 1.1% YoY improvement in
realisation to | 3.89/unit
While lower employee and other cost led to 118 bps YoY margin
expansion, higher depreciation charge with respect to new capacity
& lower other income led to 37% fall in net profit during the quarter
Healthy expansion plans to fuel future growth
Key Financials
| Crore
| 9162
1M
3M
6M
12M
9.2
2.0
8.8
44.7
10.5
9.1
2.7
30.4
Shree Cement
7.9
24.3
50.8
111.1
UltraTech Cement
6.0
-0.6
16.8
Analyst
Rashesh Shah
[email protected]
We believe Shree Cement would continue to remain ahead of its peers in

terms of capacity expansion (to add 5 MT i.e. a third of its capacity over
the next two or three years) and operating efficiency leading to better
volume growth and higher profitability. The company has commissioned
a 2.0 MT grinding unit each in Ras, Rajasthan and Aurangabad, Bihar.
Shree Cement has also initiated work on the 2.5 MT integrated unit in
Raipur, Chhattisgarh. Further, the company is also setting up a 2.0 MT
plant in Uttar Pradesh. We think the managements proactive approach in
cost-saving initiatives and significant expansion plans will help it to join
the large capacity league sooner than later.
Best midcap player in terms of cost efficiency in northern India
Shree Cement is one of the low cost producers of cement in India with
total cement capacity of 17.5 MT. It has been operating at over ~90%
capacity utilisation for the last couple of years with healthy operating
margins vs. industry. Its cost efficiency emanates from high usage of
alternate fuel (pet coke), logistic advantage and self sufficiency in power
with capacity of 560 MW. Due to this, it earns highest EBITDA/tonne in the
industry. For FY14, the company generated higher EBITDA/tonne of
| 933/tonne vs. industry EBITDA/tonne of | 692/tonne mainly due to an
advantage of low cost production and best regional mix.
Better demand-supply dynamics to keep utilisation levels healthy in north
We expect utilisation of players in the north to stay healthy due to steady
growth of capacity addition. While we expect capacity to grow at a CAGR
of 6.4% in FY14-16E, we expect demand growth to remain ahead of
supply growth (i.e. at CAGR of 7.5% over FY14-16E). Shree Cement,
being a north player, will likely remain a key beneficiary of the same.
Timely commissioning of new capacity remains key value driver
Given the upcoming new capacity and healthy demand environment, we

expect profitability growth to remain healthy over the next two years. On
39.4 the back of timely expansion, we expect volume CAGR of 14.2% during
JY14-17E to 21.1 MT with healthy realisation growth. Further, a strong
balance sheet and better efficiency in terms of cost remains a key positive
for this company. We roll over our valuation base to FY17E and upgrade
our target price to | 9,850/share with a HOLD rating on the stock [i.e. at
13.5x FY17E EV/EBITDA, $205/tonne on FY17E capacity (25 MT)].
ICICI Securities Ltd | Retail Equity Research
Variance analysis
Q1FY15 Q1FY15E
Total Operating Income
Other Income
Raw Material Consumed
Stock Adjustment
Employee Expense
Power, Oil & Fuel
Freight cost
Other Expenses
EBITDA
Q1FY14
1608.1
28.1
137.4
-6.6
112.8
413.5
317.0
293.7
340.4
1,587.1
46.0
122.4
0.0
111.4
359.1
331.2
287.8
375.2
EBITDA Margin (%)

Interest
Depreciation
PBT
Total Tax
21.2
35.0
222.7
104.1
-4.7
23.6
36.6
162.7
221.9
24.4
20.0 118 bps

31.2
12.1
113.9
95.5
177.3
-41.2
5.0
-193.0
26.5 -532 bps

30.8
13.7
153.8
44.7
303.7
-65.7
26.7
-117.5
PAT
108.8
197.5
172.2
-36.8
277.0
-60.7
3.80
3.60
3.20
18.6
3.72
2.2
4,236
3,909
3,899
8.7
4,458
-5.0
897
930
779
15.1
1,181
-24.1
Key Metrics
Volume (MT)
Blended Realisation (|)
Blended EBITDA per Tonne (|
1,247.5
74.0
104.5
-4.8
101.3
300.5
249.3
247.4
249.4
YoY (%) Q4FY14 QoQ (%)

28.9 1,656.7
-62.1
51.5
31.4
124.5
36.6
24.6
11.3
101.4
37.6
384.2
27.1
317.7
18.7
265.5
36.5
438.8
-2.9
-45.5
10.3
-126.8
11.2
7.6
-0.2
10.6
-22.4
Comments
Cement sales growth remained healthy at 18.6% YoY. Net power sales revenue
increased 17% YoY
Lower employee and other costs led to healthy margin expansion during the quarter
However, higher depreciation w.r.t. commissioning of new plant at Bihar and Ras and
low other income led to fall in profitability during the quarter
Healthy demand environment in north led to better sales volume YoY

While cement realisation increased 10% YoY to | 3736/tonne, flat power realisation
YoY led to 8.7% growth blended realisation
Cement EBITDA/tonne increased 25% YoY | 855/tonne while power margin remained
lower at 11% vs. 19.2% last year
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore)
Old
Revenue
EBITDA
7,056.5
1,719.2
FY15E
New % Change
Old
FY16E
New % Change
Old
FY17E
New % Change
6,999.7
1,752.7
-0.8
1.9
8,361.7
2,258.2
8,451.7
2,266.4
1.1
0.4
NA
NA
9,547.6
2,543.1
NA
NA
EBITDA Margin (%)

24.4
25.0
PAT
900.5
960.2
EPS (|)
258.8
275.9
68 bps
6.6
6.6
27.0
1,273.2
365.9
26.8
1,310.0
376.4
-19 bps
2.9
2.9
NA
NA
NA
26.6
1,456.3
418.5
NA
NA
NA
Comments
We revise our revenue estimates upwards taking
into account timely commissioning of new capacity
and higher realisation
Margins to also improve led by operating leverage

benefit accruing from stabilisation of new plant
Assumptions
FY13
Volume (MT)
Realisation (|)
12.4
3,675
FY14
14.2
3,696
EBITDA per Tonne (|)

1,253
979
FY15E
Current
FY16E
FY17E
FY15E
Earlier
FY16E
Comments
FY17E
16.2
3,853
19.1
4,049
21.1
16.2
18.9
4,199 3,904.0 4,156.0
NA
NA
1,082
1,184
1,204 1,092.0 1,127.0
NA
We marginally revise our volume target upwards taking into account timely
commissioning of a new plant along with healthy demand in the northern
region
We expect company to report EBITDA/tonne of over |1204/tonne by FY17E
Page 2
Company Analysis
Strong presence in northern region
Revenue share in northern region
Others
(Delhi,
Bihar, J&K)
14%
The company is one of the major players in the northern region with a
market share of ~20%. Rajasthan is the highest revenue generator state
for the company followed by Haryana and Punjab. The company has a
total capacity of 17.5 MTPA most of which is located in Rajasthan except
capacity of 1.2 MTPA, which is in Roorkee, Uttarakhand and 2.0 MTPA in
Bihar (commissioned during the quarter). Shree Cement distributes
cement under different brand names; Shree Ultra, Bangur and
Rockstrong. In FY09-13, sales and PAT have grown at a CAGR of 20% and
14.8%, respectively, while plants are operating at over 90% utilisation.
Rajasthan
22%
UP
10%
Power business: Not just another segment

Haryana
20%
Uttranchal
17%
The company is among the first companies in the cement industry to

have entered the power business. Leveraging its capabilities and strength,
it has evolved from a mere captive power producer to a major merchant
power player and is also a Category I power trading licensee. Currently,
the company has a total power generation capacity of 560 MW (300 MW
commissioned at Beawar in 2011-12) with plants located in Beawar and
Ras in Rajasthan, including waste heat recovery power plants of 46 MW
capacity. Sales from the power business contribute more than 10% to
total revenues of the company. Moreover, the company is also one of the
most efficient users of fuel in the industry. Captive capacity along with
better efficiency results in lower P&F cost per tonne for the company. It is
the first company in the world to utilise 100% pet-coke in all its operations
for both cement and power plants.
Punjab
17%
Exhibit 1: Consumes lower fuel/tonne in cement industry
Kwh/tonne
85
80
86
85
85
80
77
8786
83
79
1200
84
79 82 83
79
75
84
81 81
7778
75
81
81 81
78
75
70
1000
| / tonne
90
Exhibit 2: Lower P&F cost per tonne vs. industry
800
600
759
652
486
580
FY07
FY08
807
683
908
759
693
544
1015
634
986
561
400
200
0
65
FY09
Shree
FY10
JK Lakshmi
FY11
UltraTech
FY12
ACC
FY13
Ambuja
FY09
FY10
Shree Cement
FY11
FY12
FY13
Industry
Cement capacity to expand over 48% over next two years

The company has commissioned 2.0 MT grinding unit each in Ras,
Rajasthan and Aurangabad, Bihar. The company has also initiated work
on the 2.5 MT integrated unit in Raipur, Chhattisgarh. Further the
company is also setting up 2.0 MT plant in UP. Post these expansions, the
capacity of the company will reach ~23 MTPA i.e. over ~48% of capacity
addition from the FY14 level.
Comfortable D/E along with healthy operating cash flows
While the debt-equity ratio was at 2.1x in FY07, at the end of FY14, it has
reduced to 0.4x and is expected to remain at this level in the coming
years. Operating cash flow has also remained healthy for the company
with FY14 operating cash flow of | 1191 crore. With the lower D/E ratio
and healthy operating cash flow, going forward, further expansion will not
create any balance sheet burden.
Page 3
Exhibit 3: D/E ratio trend

2.5
2.0
1.5
2.2
1.0
1.3
0.5
1.1
1.0
0.5
0.4
0.4
0.3
0.3
FY12
FY13
FY14
FY15E
FY16E
0.0
FY08
FY09
FY10
FY11
D/E
Exhibit 4: Cash flow from operations

3000
(| crore)
2500
2000
1500
2592
1000
500
776
734
FY08
FY09
1420
1122
143
1191
FY13
FY14
1825
1833
FY15E
FY16E
2353
0
FY10
FY11
FY12
FY17E
Cashflow from Operations
Better demand-supply dynamics keeps utilisation levels healthy in north

We expect utilisation levels of players in the northern region to remain
healthy due to steady growth of capacity addition. While we expect
capacity addition growth at a CAGR of 6.4% during FY14-16E, we expect
demand growth to remain ahead of supply growth (i.e. at a CAGR of 7.5%
over FY14-16E). Shree Cement, being a north player, will likely remain a
key beneficiary of the same.
Exhibit 5: Utilisation levels to remain healthy backed by better operating dynamics in north
105
100
Effective capacity utilisation is expected to remain over

90% during FY14-17E. However, due to new capacity
95
(%)
addition, total capacity utilisation is expected to remain

below 90% during our forecast period
101
92
90
89
87
85
85
88
88
87
80
FY10
FY11
FY12*
FY13
FY14
FY15E
FY16E
FY17E
Capacity utilsation (%)
Page 4
Expect revenue CAGR of 17.5% during FY14-17E

Revenues have grown at a CAGR of ~29.5% during FY11-14 mainly led
by robust growth in the power segment due to commissioning of the 300
MW power capacity at Beawar in FY12 while the cement segments
revenue grew at a CAGR of 28.1% during the same period. Due to
moderate growth in the power segment, we expect capacity expansion in
cement to drive revenue CAGR of ~17.5% during FY14-17E. The
company is expanding its capacity and is expected to reach total capacity
of ~20 MT by FY15 and 23 MT in FY16 from current capacity of 17.5 MT.
Shree Cement is venturing into the eastern region where cement prices
have been higher than the northern region historically, which will lead to
an improvement in realisation for the company. Considering this, we
expect realisation CAGR of 4.3% for FY14-17E.
Exhibit 6: Expect expansion led revenue CAGR of 17.5% during FY14-17E
Exhibit 7: Capacity addition plans

State
12000
(| Crore)
10000
702
8000
6000
4000
2000
Region
MT
Current Capacity
583
1046
643
315
3196
5317
4571
5244
FY11
FY12*
679
759
17.5
Additions :
Raipur
Chhattisgarh
East
UP
North
2.0
Panipat
North
1.5
Bulandshahar
7750
6241
8868
Japee Grinnding unit
2.0
Total by FY16E
23.0
0
FY13
FY14
Cement Sales (| crore)
FY15E
FY16E
FY17E
Power Sales (| crore)
Exhibit 8: Volume to grow at CAGR of 14.2% during FY14-17E

25.0
19.1
20.0
15.0
14.9
10.2
14.2
12.4
Exhibit 9: Realisation to pick up from FY15 led by recovery in demand

21.1
5000
4000
16.2
3120
3579
3675
3853
3696
4049
2000
5.0
1000
0.0
10
5
0
-5
0
FY11
FY12*
FY13
FY14
FY15E
FY16E
FY17E
-10
FY11
Cement Sales Volumes (In MT)
FY12*
FY13
FY14
FY15E
Cement Realisation (|/tonne) -LS
FY16E
Exhibit 10: Merchant power sales growth to remain flat
Exhibit 11: Realisation trend in merchant power segment
2505
2610
1951
1800
1720
942
20
4.36
4
(|)
1860
4.89
FY17E
Growth (%) -RS
3000
2500
4.01
3.89
3.46
3.90
3.95
-10
-20
1
FY11
FY12*
FY13
FY14
FY15E
FY16E
Power Sale volume (In lac units)
FY17E
10
0
3
2
500
0
20
15
3000
10.0
2000
1500
1000
4199
-30
0
FY11
FY12*
FY13
FY14
FY15E
Power Realisation (per unit) - LS
FY16E
FY17E
Growth (%) -RS
Page 5
3.89
3.36
3.31
3.38
3.85
3.88
4.00
3.98
Power Realisation (|/unit)
Power Sales Volume
0.43
-0.03
Q1FY15
Q3FY14
Q2FY14
Q1FY14
Q4FY13
-1.00
Q4FY14
0.24
0.57
0.74
1.05
0.91
0.00
Q3FY13
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q5FY12
Q4FY12
0.83
1.00
4.44
3.00
2.00
200
4.44
4.00
Q2FY13
307
536 498 488
1.17
417 409
Q1FY13
390
400
5.00
795
0.90
600
722
Q5FY12
786
783
0.63
800
Q4FY12
Million Units
1000
Exhibit 13: Q1FY15 power realisations improves 1.1% YoY

4.34
Exhibit 12: Q1FY15 power volume grows 17% YoY
Power EBITDA (|/unit)

4050
20
3850
Sales volumes -LHS
Growth (%) -RHS
3720
3540
3650
4009
3736
3647
3397 3434
3450
3250
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
3050
Q4FY13
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
-10
Q3FY13
0.0
Q2FY13
0
Q1FY13
1.0
3876
Q3FY13
10
2.0
3816 3806
Q2FY13
3.0
30
Q5FY12
4.0
3.84 3.72 3.80

3.44
3.36
3.05 3.00 3.26 3.13 3.20
Q5FY12
Million Tonnes
5.0
Exhibit 15: Q1FY15 realisations grows 10.0% YoY
Q1FY13
Exhibit 14: Q1FY15 cement volume grows 18.6% YoY
Cement Realisation (|/tonne) -LS
The companys acquisition of the 1.5 MTPA cement grinding unit of

Jaiprakash Associates in Panipat, Haryana (total consideration | 360
crore) is awaiting regulatory approval. Once approved, this plant would
save time to build new grinding capacity (since it has excess clinker
capacity). Further, this acquisition would likely help the company in
saving ~| 150-200/tonne on freight costs at that location.
Page 6
Margins to improve led by price hikes and stabilisation in cost structure

We expect operating margins to improve given the healthy pick-up in
prices in the northern region coupled with operating leverage benefits.
Exhibit 16: Expect EBITDA/tonne of |1145 in FY17E
1092
1050
1021
933
60
1145
1118
45
754
(%)
30
25.2
27.7
27.9
15
FY11
FY12*
FY13
FY14
FY15E
FY16E
FY11
FY17E
FY12*
FY13
FY14
FY15E
FY16E
Exhibit 18: Quarterly trend in EBITDA
Exhibit 19: Pick-up in margins expected, going forward

35
996
1164
977
1087
1089 1185
972
683 719
800
33.1
30.1
30
855
(%)
1328
FY17E
Total EBITDA Margin (%)
29.1
25.2
25
26.7
25.9 26.5
21.2
20.0 20.5
20
400
Q1FY15
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q5FY12
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q5FY12
Q4FY12
Q2FY13
15
Q1FY13
| per tonne
26.6
Cement EBITDA/Tonne
1200
26.8
25.0
23.6
Q4FY14
1500
1300
1100
900
700
500
300
100
-100
Exhibit 17: Margins to improve 440 bps to 26.6% in FY17E from FY14
Total EBITDA Margin
Expect net profit growth of ~19% in FY14-16E

After witnessing a sharp decline in profits in FY14, we expect net margins
to improve to 15.3% in FY16E from 13.4% in FY14. Overall, we expect net
profit to grow 18.9% in FY14-17E vs. net profit de-growth of 13.9% for
FY14
1600
1400
1200
1000
800
600
400
200
0
1310
1005
865
1456
20.0
15.0
966
10.0
631
258
5.0
0.0
FY11
FY12*
FY13
Net profit - LS
FY14
FY15E
FY16E
FY17E
Net profit margin -RS
Page 7
(%)
| crore
Exhibit 20: Profitability trend
Outlook and valuation

Shree Cement would continue to remain ahead of its peers in terms of
capacity expansion (to add 5 MT i.e. a third of its capacity over the next
two or three years) and operating efficiency leading to better volume
growth and higher profitability. We think the managements proactive
approach to cost-saving initiatives and significant expansion plans will
help it join the large capacity league sooner than later.
Given the upcoming new capacity and healthy demand environment, we
expect profitability growth to remain healthy over the next two years. On
the back of timely expansion, we expect volume CAGR of 14.2% during
JY14-17E to 21.1 MT with healthy realisation growth. Further, a strong
balance sheet and better efficiency in terms of cost remains a key positive
for this company. We roll over our valuation base to FY17E and upgrade
our target price to | 9,850/share with a HOLD rating on the stock [i.e. at
13.5x FY17E EV/EBITDA, $205/tonne on FY17E capacity (25 MT)].
Exhibit 21: Key assumptions
| per tonne
FY12*
FY13
FY14
FY15E
FY16E
Sales Volume
14.9
12.4
14.2
16.2
19.1
21.1
Realisation
3579
3675
3696
3853
4049
4199
Total Expenditure
2487
2625
2763
2832
2931
3054
10
-12
-12
-5
Raw material
390
377
327
357
370
384
Employee
215
263
279
269
251
250
Power & fuel
634
561
565
645
630
655
Freight
702
736
839
803
850
875
Others
537
700
765
763
830
890
Stock Adj
EBITDA per Tonne
1092
1050
933
1021
1118
1145
Power Volumes (million units)

Realisation (|/unit)
1322
2610
1860
1951
1800
1720
4.4
4.0
3.5
3.9
3.9
4.0
0.6
1.0
0.4
0.5
0.7
0.7
EBITDA (|/unit)
Source: ICICIdirect.com Research
FY17E
Page 8
Exhibit 22: One year forward EV/EBITDA

35000
30000
(| crore)
25000
20000
15000
10000
5000
EV
14.0x
12.0x
10.0x
Nov-14
Mar-14
Jul-13
Nov-12
Mar-12
Jul-11
Nov-10
Mar-10
Jul-09
Nov-08
Mar-08
Jul-07
Nov-06
8.0x
4.0x
Exhibit 23: One year forward EV/tonne

5000
4000
Million $
3000
2000
1000
EV
$240
$210
$180
$150
$120
Nov-14
Mar-14
Jul-13
Nov-12
Mar-12
Jul-11
Nov-10
Mar-10
Jul-09
Nov-08
Mar-08
Jul-07
Nov-06
$90
Exhibit 24: Key valuation summary
FY14
FY15E
FY16E
FY17E
Sales
(| cr)
5887.3
6999.7
8451.7
9547.6
Growth
(%)
-5.3
18.9
20.7
13.0
EPS
(|)
226.2
275.9
376.4
418.5
Growth
(%)
62.3
22.0
36.4
11.2
PE EV/tonne
(x)
40.5
345.7
33.2
275.7
24.3
251.7
21.9
205.5
EV/EBITDA
(x)
23.6
18.5
14.2
12.5
RoNW
(%)
16.7
17.2
19.2
18.8
Page 9
RoCE
(%)
13.0
13.9
16.6
17.1
Company snapshot
12,000
Target Price: | 9850
10,000
8,000
6,000
4,000
2,000
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date
Mar-08
Sep-08
Feb-09
Mar-09
May-10
May-12
Event
Completes two clinkerisation units namely, unit V and VI at Bangur city and two grinding units at Khushkhera in Alwar, Rajasthan. Thus, attaining a total capacity of
6.83 MTPA on ordinary portland cement (OPC) basis. In addition, it also commissioned the two captive power plants at Bangur City in order to meet the power
requirement of these expanded capacities
Increases thermal power generation capacity by commissioning 18 MW turbine generator (TG-VI) at Bangur city
Government announces excise duty cut of 2% to boost cement sales
Company completes its 1 MTPA clinkerisation unit (unit-VII) at Bangur city and starts trial production
Reports surprise net loss of | 71.3 crore due to change in depreciation policy
CCI completes probe into alledged cartilsation by 39 cement companies and finds these companies including Shree Cement guilty of forming cartelisation
Jun-12
Jul-13
Jul-13
Aug-14
CCI imposes | 397 crore penalty on Shree Cement for indulging in restrictive trade practices
Supreme Court directs six cement firms (including Shree Cement) to pay 24% interest on royalty due between 1992 and 1996 to Rajasthan state government
Recommends dividend of | 12/share for June year ending FY13
To acquire 1.5 MTPA cement grinding unit of Jaiprakash Associates situated at Panipat, Haryana for consideration of | 360 crore
Oct-14
The company commissions 2.0 MT grinding unit each in Ras, Rajasthan and Aurangabad, Bihar
Top 10 Shareholders
Rank
2
3
4
5
6
7
8
9
10
0
Name
Shree Capital Services, Ltd.
Digvijay Finlease, Ltd.
FLT, Ltd.
Mannakrishna Investments Pvt. Ltd.
Newa Investments Pvt. Ltd.
Ragini Finance, Ltd.
Didu Investments Pvt. Ltd.
NBI Industrial Finance Co., Ltd.
UTI Asset Management Co. Ltd.
HDFC Standard Life Insurance Company Limited
Shareholding Pattern
Latest Filing Date
30-Jun-14
30-Sep-14
30-Sep-14
30-Sep-14
30-Sep-14
30-Sep-14
30-Sep-14
30-Sep-14
30-Sep-14
30-Sep-14
% O/S Position (m) Change (m)

25.79
9.0
0.0
12.16
4.2
0.0
10.33
3.6
0.0
5.86
2.0
0.0
3.95
1.4
0.0
3.64
1.3
0.0
3.36
1.2
0.0
2.44
0.9
0.0
1.78
0.6
0.0
1.76
0.6
-0.2
(in %)
Promoter
FII
DII
Others
Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

64.79 64.79 64.79 64.79 64.79
8.14
8.21
8.15
8.63
9.66
5.89
5.73
5.86
6.28
6.22
21.18 21.27 21.20 20.30 19.33
Source: Reuters, ICICIdirect.com Research
Recent Activity
Buys
Investor name
Franklin Advisers, Inc.
Norges Bank Investment Management (NBIM)
APG Asset Management
First State Investment Management (UK) Limited
Bangur (Ranu)
Value
23.16m
5.40m
4.11m
3.98m
1.09m
Shares
0.19m
0.08m
0.06m
0.04m
0.02m
Sells
Investor name
HDFC Standard Life Insurance Company Limited
GMO LLC
Franklin Templeton Asset Management (India) Pvt. Ltd.
DSP BlackRock Investment Managers Pvt. Ltd.
Morgan Stanley Investment Management (India) Pvt. Ltd.
Value
-28.60m
-9.37m
-8.08m
-6.86m
-5.22m
Shares
-0.21m
-0.12m
-0.10m
-0.06m
-0.04m
Source: Reuters, ICICIdirect.com Research
Page 10
Financial summary
Profit and loss statement
(Year-end March)
| Crore
FY14
FY15E
FY16E
FY17E
5,887.3
6,999.7
8,451.7
9,547.6
5.3
18.9
20.7
13.0
Raw material cost
447.5
571.0
708.2
811.0
Power & Fuel cost
1378.7
1703.5
1781.8
Freight cost
1190.5
1300.4
395.3
436.2
Total operating Income

Growth (%)
Employees cost
Cash flow statement

(Year-end March)
| Crore
FY14
FY15E
FY16E
FY17E
Profit after Tax
787.2
960.2
1,310.0
1,456.3
Add: Depreciation
549.9
721.1
844.4
965.8
Add: Interest
129.2
139.9
129.8
111.1
1938.1
(Inc)/dec in Current Assets
-261.5
-150.1
-480.2
-319.0
1626.9
1848.0
Inc/(dec) in CL and Provisions
479.8
527.7
CF from operating activities
-14.2
153.9
28.7
138.6
1,190.7
1,824.9
1,832.8
2,352.8
Others
1085.5
1236.0
1588.6
1879.7
(Inc)/dec in Investments
-23.2
0.0
0.0
0.0
Total Operating Exp.
4,497.5
5,247.0
6,185.3
7,004.5
(Inc)/dec in Fixed Assets
-2,022.6
-1,350.0
-1,280.0
-1,430.0
EBITDA
Others
1,389.8
1,752.7
2,266.4
2,543.1
Growth (%)
-11.0
26.1
29.3
12.2
CF from investing activities
Depreciation
549.9
721.1
844.4
965.8
Issue/(Buy back) of Equity
Interest
129.2
139.9
129.8
111.1
Inc/(dec) in loan funds
Other Income
184.9
156.1
188.0
200.0
Dividend paid & dividend tax
PBT
895.7
1,047.8
1,480.2
1,666.2
Others
80.5
6.7
0.0
0.0
Total Tax
27.9
80.9
170.2
209.9
PAT
787.2
960.2
1,310.0
Adjusted PAT
865.0
966.4
1,310.0
Inc/(dec) in Sec. premium
-49.1
0.0
0.0
0.0
-2,094.9
-1,350.0
-1,280.0
-1,430.0
0.0
0.0
0.0
0.0
315.9
100.0
-100.0
-250.0
0.0
-81.4
-81.4
-81.4
80.1
0.0
0.0
-435.1
Others
-129.2
-139.9
-129.8
-111.1
CF from financing activities
266.7
-121.3
-311.3
-877.6
1,456.3
Net Cash flow
-637.5
353.6
241.5
45.2
1,456.3
Opening Cash
814.6
159.2
512.9
754.3
Closing Cash
177.1
512.9
754.3
799.6
FY15E
FY16E
FY17E
Growth (%)
-13.9
11.7
35.6
11.2
Adjusted EPS (|)
248.6
277.7
376.4
418.5
FY14
FY15E
FY16E
Source: ICICIdirect.com Research
Balance sheet
(Year-end March)
| Crore
FY17E
Reserve and Surplus
(Year-end March)
34.8
34.8
34.8
34.8
EPS
248.6
277.7
376.4
418.5
4,676.0
5,554.8
6,783.4
7,723.1
Cash EPS
384.2
483.1
619.1
696.0
1,353.7
1,606.2
1,959.3
2,229.3
0.0
20.0
20.0
20.0
45.8
147.4
216.8
229.8
Total Shareholders funds
4,710.9
5,589.6
6,818.2
7,758.0
BV
Total Debt
1,731.2
1,831.2
1,731.2
1,481.2
DPS
-142.9
-142.9
-142.9
-142.9
Deferred Tax Liability

Minority Interest / Others
Total Liabilities
FY14
Per share data (|)
Liabilities
Equity Capital
Key ratios
0.0
0.0
0.0
0.0
6,299.2
7,277.9
8,406.5
9,096.3
Assets
Cash Per Share

Operating Ratios (%)
EBITDA Margin
23.6
25.0
26.8
26.6
PAT Margin
13.4
13.7
15.5
15.3
Gross Block
6,185.6
8,235.6
9,355.6
10,765.6
Inventory days
50.2
40.0
43.0
43.0
Less: Acc Depreciation
4,733.3
5,454.4
6,298.7
7,264.5
Debtor days
18.4
18.4
18.4
18.4
Net Block
1,452.3
2,781.2
3,056.9
3,501.0
Creditor days
47.6
47.0
40.0
40.0
Capital WIP
1,500.0
800.0
960.0
980.0
Total Fixed Assets
2,952.3
3,581.2
4,016.9
4,481.0
RoE
16.7
17.2
19.2
18.8
Investments
2,244.4
2,244.4
2,244.4
2,244.4
RoCE
13.0
13.9
16.6
17.1
Inventory
809.8
767.1
995.7
1,124.8
RoIC
20.7
19.2
23.3
23.4
Debtors
296.6
352.6
425.8
481.0
Loans and Advances
689.2
819.4
989.4
1,117.7
P/E
40.5
33.2
24.3
21.9
EV / EBITDA
12.5
Other Current Assets

Cash
Total Current Assets
Return Ratios (%)
Valuation Ratios (x)

23.6
18.5
14.2
EV / Net Sales
5.6
4.6
3.8
3.3
3,578.8
Market Cap / Sales
5.4
4.6
3.8
3.3
Price to Book Value
6.8
5.7
4.7
4.1
34.3
40.8
49.3
55.7
159.2
512.9
754.3
799.6
1,989.2
2,492.8
3,214.5
Creditors
768.1
901.3
926.2
1,046.3
Provisions
118.6
139.2
143.1
161.6
Solvency Ratios
886.7
1,040.6
1,069.3
1,207.9
Debt/EBITDA
1.2
1.0
0.8
0.6
Net Current Assets
1,102.5
1,452.3
2,145.2
2,370.8
Debt / Equity
0.4
0.3
0.3
0.2
Application of Funds
6,299.2
7,277.9
8,406.5
9,096.3
Current Ratio
2.2
2.4
3.0
3.0
Quick Ratio
1.3
1.7
2.1
2.0
Total Current Liabilities
Page 11
ICICIdirect.com coverage universe (Cement)

Company
ACC*
Ambuja Cement*
UltraTech Cem
Shree Cement^
Heidelberg Cem*
India Cement
JK Cement
JK Lakshmi Cem
Mangalam Cem
CMP
(|)
1500
228
2557
9200
90
112
669
392
333
TP(|)
1,635
241
3,180
9,850
105
141
735
458
322
Rating
HOLD
HOLD
BUY
HOLD
BUY
BUY
BUY
BUY
TA#
M Cap
(| Cr)
28,185
35,091
68,002
31,884
1,972
3,195
4,406
4,378
700
EV/EBITDA (x)
FY14 FY15E FY16E FY17E
18.8 17.8 15.4 13.8
19.7 15.5 14.6 12.3
18.9 16.4 12.4
9.4
23.6 18.5 14.2 12.5
37.2 12.2 10.2
8.4
11.1
8.1
6.4
5.4
5.5
7.8 10.9 14.7
18.1 12.2
9.7
7.1
21.7
6.7
5.6
3.7
EV/Tonne ($)
140
140
129
129
164
165
163
149
202
183
163
148
252
205
187
187
99
88
89
86
71
65
63
58
130
93
91
86
137
102
98
85
51
50
52
49
RoCE (%)
9.9
9.9 10.9 11.3
11.4
8.3
8.1
8.7
11.9 12.3 14.9 18.1
13.0 13.9 16.6 17.1
-0.5
6.2
8.2 10.2
3.9
6.4
8.3
9.1
5.2
8.5
9.7 14.7
6.1
9.0 11.1 14.3
2.1 11.7 14.6 20.7
RoE (%)
14.0 12.6 13.3 13.9
13.6
9.2
9.1
9.7
12.5 12.9 14.9 16.6
16.7 17.2 19.2 18.8
-4.9
7.6
7.6 10.2
-0.9
1.2
4.0
5.1
5.2
8.5
9.7 14.7
7.1 11.4 13.5 16.8
5.8
9.5 13.4 18.7
Page 12
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head Research
[email protected]
ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai 400 093
[email protected]
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Page 13

Shree Cement (SHRCEM) : Strong Growth Visibility

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Shree Cement (SHRCEM) : Strong Growth Visibility

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Result Update

November 18, 2014

Shree Cement (SHRCEM)

Strong growth visibility

Changed from | 8600 to | 9850

Q4FY14 QoQ (%)

Price to book (x)

** adjusted for cement business

Cash & Invest (FY14)

Price performance (%)

Shree Cements net profitability for Q1FY15 (June year ending)

We believe Shree Cement would continue to remain ahead of its peers in

Given the upcoming new capacity and healthy demand environment, we

ICICI Securities Ltd | Retail Equity Research

EBITDA Margin (%)

20.0 118 bps

26.5 -532 bps

YoY (%) Q4FY14 QoQ (%)

Healthy demand environment in north led to better sales volume YoY

Source: Company, ICICIdirect.com Research

EBITDA Margin (%)

Margins to also improve led by operating leverage

EBITDA per Tonne (|)

1,204 1,092.0 1,127.0

ICICI Securities Ltd | Retail Equity Research

We expect company to report EBITDA/tonne of over |1204/tonne by FY17E

Revenue share in northern region

Power business: Not just another segment

The company is among the first companies in the cement industry to

Exhibit 1: Consumes lower fuel/tonne in cement industry

Exhibit 2: Lower P&F cost per tonne vs. industry

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Cement capacity to expand over 48% over next two years

ICICI Securities Ltd | Retail Equity Research

Exhibit 3: D/E ratio trend

Source: Company, ICICIdirect.com Research

Exhibit 4: Cash flow from operations

Cashflow from Operations

Source: Company, ICICIdirect.com Research

Better demand-supply dynamics keeps utilisation levels healthy in north

Effective capacity utilisation is expected to remain over

addition, total capacity utilisation is expected to remain

Capacity utilsation (%)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Expect revenue CAGR of 17.5% during FY14-17E

Exhibit 7: Capacity addition plans

Japee Grinnding unit

Source: Company, ICICIdirect.com Research

Cement Sales (| crore)

Power Sales (| crore)

Source: Company, ICICIdirect.com Research

Exhibit 8: Volume to grow at CAGR of 14.2% during FY14-17E

Exhibit 9: Realisation to pick up from FY15 led by recovery in demand

Cement Sales Volumes (In MT)

Cement Realisation (|/tonne) -LS

Source: Company, ICICIdirect.com Research

Exhibit 10: Merchant power sales growth to remain flat

Exhibit 11: Realisation trend in merchant power segment

Growth (%) -RS

Source: Company, ICICIdirect.com Research

Power Sale volume (In lac units)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Power Realisation (per unit) - LS

Growth (%) -RS

Source: Company, ICICIdirect.com Research

Power Realisation (|/unit)

Power Sales Volume

536 498 488

Exhibit 13: Q1FY15 power realisations improves 1.1% YoY

Exhibit 12: Q1FY15 power volume grows 17% YoY

Power EBITDA (|/unit)

Source: Company, ICICIdirect.com Research

Sales volumes -LHS