Earnings Outlook
Weak demand to pull down Shree Cement Jul-Sept PAT 85% YoY
This story was originally published at 19:51 IST on 9 October 2024
Register to read our real-time news.Informist, Wednesday, Oct. 9, 2024
By Rajesh Gajra
MUMBAI – Cement major Shree Cement Ltd. will likely report weak financials in the September quarter, hit by muted demand, degrowth in volumes and sales realisation and negative operating leverage due to spending on recently operationalised new plants, analysts said.
The hit on sales realisation in Jul-Sept will likely result in a decline in revenue and a slump in profits from a year ago. Shree Cement's net profit is seen falling by a whopping 85% on year to INR 734 million in Jul-Sept, according to an average of estimates by 10 brokerages. On a sequential basis, the net profit will likely fall 77%. The estimates on net profit range from a net loss of INR 355 million by Kotak Institutional Equities to a net profit of INR 2.65 billion by Axis Securities. If the net profit declines as projected, it will be the second consecutive quarter of fall and the worst in any quarter in at least the last four years.
The company's revenue is estimated at INR 38.75 billion in Jul-Sept, down 15.5% from a year ago and 20% from a quarter ago. The revenue estimates range from INR 36.63 billion by ICICI Securities to INR 42.14 billion by Nuvama Wealth Management. This will be the second fall in revenues in at least 17 quarters with the last one being in Apr-Jun.
In the Apr-Jun quarter, Shree Cement's net profit fell by 45% on year to INR 3.18 billion and revenue from operations declined 2.7% on year to INR 48.35 billion.
Brokerages Kotak Institutional Equities and ICICI Securities estimate Shree Cement's volume to decline 8.5% on year to 7.5 million tonnes in the September quarter, while Axis Securities and Prabhudas Lilladher have projected it to rise 2% on year to 8.4 million tonnes.
Demand conditions were very depressed for the cement industry in the June quarter, which pushed down cement prices. Ashok Bhandari, senior advisor of Shree Cement, told investors in a post-earnings call in August that for the cement industry pricing is a function of demand. "The demand in Q1 (Apr-Jun) was very weak, you see the peer group, roughly Ramco (The Ramco Cements Ltd.) lost 21% in quantity, 16% was lost by Dalmia (Dalmia Bharat Ltd.), Ultratech (Ultratech Cement Ltd.) lost 9%. We gained 1%," Bhandari said.
The September quarter is not expected to be different as far as the demand conditions are concerned. Bhandari said in the call on Aug. 7 that "nothing has revived the demand in July... August till date we are weak." He also said the September quarter was not going to be good for the cement industry.
Kotak Institutional Equities estimates the blended realisation of Shree Cement to fall 12% on year on account of price weakness, while ICICI Securities expects it to fall by 11%. Axis Securities expects the realisation per tonne to fall 13% on year to INR 4,068.
Shree Cement's earnings before interest, depreciation, and amortisation are seen between INR 4.91 billion and INR 7.43 billion in Jul-Sept. According to Kotak Institutional Equities, EBITDA is expected to fall sharply by 40% on year to INR 5.21 billion due to lower cement prices and a rise in operating costs. Axis Securities sees EBITDA falling by 23% from a year ago.
The company will detail its earnings on Nov. 11. Analysts will keenly await the management's comments on demand and pricing trajectory for the remainder of the current financial year.
On Wednesday, shares of Shree Cement closed 2.4% lower at INR 24,975.05 on the National Stock Exchange of India.
Following are the Jul-Sept earnings estimates of Shree Cement based on reports compiled by Informist from 10 brokerage houses:
| Brokerage firm | Net sales | Net profit | EBITDA |
| ------------(In INR million)---------- | |||
| Antique Stock Broking Ltd | 38,052 | 431 | 6,020 |
| Axis Securities Ltd | 41,090 | 2,650 | 6,730 |
| Centrum Broking Ltd | 39,085 | 244 | 6,220 |
| Elara Securities (India) Pvt Ltd | 37,257 | 1,015 | 5,899 |
| ICICI Securities Ltd | 36,634 | 117 | 4,913 |
| Kotak Institutional Equities | 36,865 | -355 | 5,212 |
| Motilal Oswal Financial Services Ltd | 38,124 | 738 | 6,139 |
| Nuvama Wealth Management Ltd | 42,141 | 1,326 | 7,433 |
| Prabhudas Lilladher Pvt Ltd | 41,121 | 884 | 7,023 |
| Sharekhan Ltd | 37,080 | 290 | -- |
| Average | 38,745 | 734 | -- |
End
Edited by Saji George Titus
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