One-offs puncture Shree Cement’s profit in June quarter

With volume and earnings prospects remaining intact, Street positive on the company

After a significant improvement in profitability reported by ACC and Ambuja Cements, and with UltraTech maintaining the metric despite weak realisations and cost pressures, Shree Cement’s reported numbers — below expectations — initially stumped the Street.

But, a detailed look suggests that business performance was in line with estimates and prospects remain intact, which is why analysts remain positive on the stock that recovered as the day closed.

Reported net profit at ~2.79 billion, down about 36.5 per cent year-on-year, missed Street expectations by about 20 per cent as the cement segment’s profits plunged 80 per cent yearon-year.

The company’s reported earnings before interest, tax, depreciation and amortisation (Ebitda) at ~5.75 billion, too, came lower than Bloomberg consensus estimates of ~6.54 billion.

The cost pressures for cement players, driven by a 32 per cent year-on-year rise in pet coke prices and about 24 per cent year- on-year surge in diesel costs, was felt by Shree Cement too, which saw transportation costs (about 30 per cent of overall expenses) surge 34 per cent and energy costs (25 per cent of expenses) jump 55 per cent year- on-year in the June quarter.

However, it is the significant jump in other expenses (about ~1.2 billion), which impacted the Ebitda.

Analysts say that this has been because of a onetime exceptional loss of about ~0.75 billion, and adjusted for the same, Ebitda would have been along expectations.

Not surprising, Shree Cement’s share price closed 0.27 per cent up on Monday at ~17,175 levels, post results.

On the positive side, the company’s cement sales volumes at 6.99 million tonnes (MT) grew 18.7 per cent yearon-year (8.55 per cent sequentially).

While cement prices in North India were seen under pressure, it was partly compensated by better pricing in East India. Thus, the company’s per tonne realisation also came as expected, at ~4,105 (down about 2.3 per cent year-on-year and 1 per cent sequentially).

Shree Cement commissioned a 3 MT per annum cement mill in Karnataka and acquired a company operating railway sidings in Chhattisgarh.

Analysts say that with expansions continuing, the volume growth trend will also continue.

With volume prospects good, the Street will be looking at first signs of improvement in realisations — as the monsoon season ends — to drive earnings.

This will also be a key factor in lifting sentiment.