Shree Cements’ 3QFY09 net profit paralleled our estimates. Strong volume growth (30% y-o-y) and a 5% reduction in power and fuel prices were the highlights.
Revenue growth, at 25.6% y-o-y, was in line with our estimates. Aggregate volumes soared 30.2% y-o-y (4.4% q-o-q) to 2.1m tons. Realizations, at Rs3,099 a tonne, slipped 5.4% y-o-y, though they were up 1.4% q-o-q.
EBITDA per tonne was Rs1,078, up 19% sequentially but down 23% y-o-y. Power and fuel costs per tonne slid 5% q-o-q, to Rs748, as prices of petcoke have cooled off.
However, the major benefit of lower prices will continue through 4Q09 and 1Q10. Freight charges rose 13% q-o-q, to Rs636/tonne.
Expansion of line VII (1.5m tonne) is on schedule and will be operational before Jun ’09. Further, the company is adding a grinding unit of 1.5m tonnes, an 85-MW power plant (waste heat 35, thermal 50) by March’10.
All these and the maintenance capex, a total of Rs12 billion, would be funded largely through internal accruals. Any substantial revenues from sale of excess power would come in from FY11; we have not factored this in our estimates.
We retain our estimates and maintain a HOLD, with a target of Rs561 based on 3.3x FY10e EV/EBITDA. At the target price, the stock would trade at a PE of 5x and an EV/ton of $48 FY10e.