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Shree Cements Equity Research

HomeCompanyShree Cements Equity Research

Date of Research – 21 January 2016

Price – Rs. 9534.00

About the Company

Shree Cements Limited (“Shree Cements” or the “Company“) is engaged in the manufacture and sale of cement in India. The Company offers cement under brands like Shree Ultra, Bangur Cement, and Rockstrong Cement. The Company’s cement plants are located at Beawar, Ras, Khushkhera, Jobner (Jaipur) and Suratgarh in Rajasthan and Laksar (Roorkee) in Uttarakhand. Shree Cement sells majority of the cement it produces in North India.

The Company has a cement production capacity of 13.5 Million Tons Per Annum (MTPA). Shree Cement plans to increase its existing capacity by setting up two new clinker manufacturing units of 2 MTPA capacities. The Company has also planned a new grinding unit in the state of Bihar and an integrated unit in the state of Chattisgarh. Shree Cement has a power generation capacity of 560 MW with plants located at Beawar and Ras in Rajasthan. The Company’s heat recovery power plants have a total capacity of 46MW which is the largest such capacity in the global cement industry (excluding China).

For FY 2012, the Company has reported the numbers from April-June instead of April – March and accordingly the figures for the period under review is for a period of 15 months ended June 30, 2012 and hence not comparable with last year.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 5,590.25 5,887.31 6,453.57 5,567.75  9,496.52 
Expenses 4,029.33 4,497.49 5,109.72 4,247.52  7,129.32
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 1,560.92 1,389.82 1,343.85 1,320.23  2,367.20  
Depreciation 435.63 549.91 924.78 908.41  1,214.71  
Finance Costs 193.14 129.19 120.63 75.12  129.42  
Other income 188.33 184.94 137.85 120.11  507.71  
Exceptional items 1.06 80.51 35.46 2.30 
PBT 1,119.42 815.15 400.83 454.51  1,530.78  
Tax 115.45 27.91 (25.50) (0.39)  191.70  
PAT (before Minority Interest and share of Associates) 1,003.97 787.24 426.33 454.90  1,339.08  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 27.92 23.61 20.82 23.71  24.93
Net Profit Margin Ratio 17.96 13.37 6.61 8.17  14.10 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 34.84 34.84 34.84 34.84 34.84 
Reserves & Surplus 2,699.09 3,808.78 4,675.97 5,241.47 6,145.38 
Net worth (shareholders funds) 2,733.93 3,843.62 4,710.81 5,276.31 6,180.22 
Long term borrowings 817.74 443.08 446.68 401.41 520.92 
Current liabilities 1,109.58 2,033.83 1,417.01 1,499.31 1,154.00 
Other long term liabilities and provisions 387.1 456.39 671.89 871.43 933.88 
Total Liabilities 5,972.60 6,160.10 7,328.69 7,997.79 8,789.02 


Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 1,617.79 1,915.27 2,952.27 3,515.43 3,314.67 
Noncurrent Investments 1,335.20 1,501.40 1,519.26 1,493.79 2,286.20 
Current assets 2,744.57 2,271.77 2,331.93 2,333.19 2,000.79 
Long term advances and other noncurrent assets 205.30 377.89 382.37 460.19 923.99 
Deferred Tax Assets 69.74 93.77 142.86 195.19 263.37 
Total assets 5,972.60 6,160.10 7,328.69 4,906.19 8,789.02 

Efficiency Analysis

Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 45.99 36.41 26.95 23.67 19.70 
ROE / RONW 22.62 26.12 16.71 8.08 7.36 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 5,590.25 5,887.31 6,453.57 5,567.75  9,496.52 
Growth (%) (5.22 %) 5.31 % 9.62 % (13.73 %)  70.56 % 
PAT (Rs. Cr.) 1,003.97 787.24 426.33 454.90  1,339.08  
Growth (%) 62.32 % (21.59 %) (45.84 %) 6.70 %  194.37 % 
Earnings Per Share – Basic (Rs. ) 288.19 225.98 122.38 130.58  384.38 
Earning Per Share – Diluted (Rs. ) 288.19 225.98 122.38 130.58  384.38 
Price to Earnings 15.00 40.12 89.49 95.12  46.00 

Dividend History

The Company has maintained an average dividend yield of 0.85 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Shree Cement’s average current ratio over the last 5 financial years has been 1.56 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Shree Cement’s average long term debt to equity ratio over the last 5 financial years has been 0.27 times which indicates that the Company operates with low level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Shree Cement’s average interest coverage ratio over the last 5 financial years has been 9.10 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Shree Cement reported a promoter holding of 64.79 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 18.49 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.


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