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4QFY2013 Result Update | Cement

August 14, 2013

Shree Cement
Performance highlights

NEUTRAL
CMP Target Price
% Chg qoq (2.1) (9.6) (220)bps 3.8 5QFY2012 1,376 480 33.0 351 % Chg yoy 4.7 (20.9) (663)bps (18.9)
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 13,762 343 0.7 5210/3180 1,728 10 19,230 5,699 SHCM.BO SRCM@IN

`3,950 -

Quarterly results - Standalone


Y/E June (` cr) Net sales Operating profit OPM (%) Net profit 4QFY2013 1,441 380 26.3 284 3QFY2013 1,472 420 28.5 274

Investment Period

Source: Company, Angel Research

For 4QFY2013 Shree Cement (SRCM) posted better-than-expected results aided by higher other income and lower tax expense. The companys EBITDA fell by 20.9% yoy, impacted by weak performance of the cement businesses which witnessed a steep 6.1% yoy decline in realization. EBITDA/tonne of cement fell 29% yoy to `932. The tepid performance of the cement business was offset to an extent by a strong 140% yoy growth in EBITDA of the power business to `84cr. OPM at 26.3%, up 663bp yoy: SRCMs top-line fell by 1% yoy to `1,442cr, with the cement business posting a 9.7% decline in its top-line to `1,141cr. Cement volumes were down by 5.9% yoy impacted by demand de-growth in the companys key markets in North India. Realization fell by 6.1% on a yoy basis. However, the power business posted a top-line growth of 81%, aided by a 104% yoy growth in volumes to 794MU. OPM was down 663bp yoy to 26.3% due to lower cement realization and increase in raw material and freight costs. EBITDA/unit of power stood at `1.06 (vs EBITDA/unit of `0.9 in 5QFY2012). Although SRCMs bottom-line fell by 18.9% yoy to `284cr for the quarter, it was better than our estimate on account of higher other income of `92cr (up 184% yoy) and lower tax expense of `16cr (down 50% yoy). Outlook and valuation: We expect SRCM to post a 13.4% and 27.6% growth in its top-line and bottom-line respectively over FY2013-15E. At the current market price, we believe SRCM's cement business is trading at a fair valuation of EV/tonne of US$111 on current capacity. We maintain our Neutral rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 64.8 5.9 8.6 20.8

Abs. (%) Sensex

3m (2.3) (15.4)

1yr 9.1 22.5

3yr 5.9 109.7

Key financials
Y/E June (` cr) Net Sales % chg Net Profit % chg FDEPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) FY2012 5,898 70.8 618 194.7 180.9 27.9 21.8 5.0 26.7 19.3 1.9 149 7.0 FY2013E 5,567 (5.6) 1005 62.6 288.4 27.6 13.7 3.6 30.6 24.0 2.0 111 7.4 FY2014E 6,316 13.5 1026 2.1 294.6 26.5 13.4 2.9 23.9 21.1 1.7 94 6.4 FY2015E 7,162 13.4 1186 15.6 340.5 25.7 11.6 2.4 22.7 20.5 1.3 72 5.2

SRCM

EV/tonne ($)
EV/EBITDA

V.Srinivasan
+91 22 39357800 Ext. 6831 v.srinivasan@angelbroking.com

Source: Company, Angel Research; Note:* The company has changed its accounting period to June-end, hence FY2012 consists of 15 months.; CMP as on August 13th 2013

Please refer to important disclosures at the end of this report

Shree Cements | 4QFY2013 Result Update

Exhibit 1: 4QFY2013 performance


Y/E June (` cr) Total Operating Income Net raw-material costs (% of sales) Power & fuel (% of sales) Staff costs (% of sales) Freight & forwarding (% of sales) Other expenses (% of sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. items PBT Provision for Taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

4QFY2013 1,441 138 9.6 407 28.2 94 6.5 234 16.2 189 13.1 1,062 380 26.3 38 133 92 300 300 16 5.3 284 19.7 82

3QFY2013 1,472 141 9.6 354 24.1 75 5.1 240 16.3 242 16.4 1,052 420 28.5 45 126 43 292 292 18 6.0 274 18.6 79

% Chg qoq (2.1) (2.4) 14.7 26.1 (2.3) (21.8) 1.0 (9.6) (220)bp (15.4) 5.3 114.2 3.0 3.0 (9.6) 3.8 3.8

5QFY2012 1,456 136 9.3 341 23.4 75 5.1 236 16.2 188 12.9 976 480 33.0 48 82 32 383 383 32 8.4 351 24.1 101

% Chg yoy (1.0) 1.4 19.1 25.9 (0.6) 0.4 8.8 (20.9) (663)bp (21.1) 62.8 185.0 (21.5) #DIV/0! (21.5) (50.2) (18.9) (18.9)

FY2013 5,567 523 12.4 1,513 36.0 314 7.5 915 21.7 765 18.2 4,029 1,538 27.6 193 436 211 1,120 1 1,119 115 10.3 1,004 23.9 288

FY2012 5,799 598 17.5 1,500 43.8 319 9.3 1,006 29.4 730 21.3 4,154 1,646 28.4 235 873 163 700 12 688 69 10.1 619 18.1 178

% Chg (4.0) (12.6) 0.9 (1.6) (9.1) 4.7 (3.0) (6.6) (76)bp (17.9) (50.1) 29.8 60.0 (91.4) 62.7 66.7 62.3 62.3

Exhibit 2: Financial performance


(` cr) 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 0.0 3QFY12 4QFY12 5QFY12 1QFY13 2Q13 3Q13 4Q13 Total operating income Source: Company, Angel Research Net Profit OPM (RHS) 59 114 351 228 215 274 284 1,259 1,376 1,456 1,324 1,428 1,472 1,441 (%) 35.0 33.0 31.0 29.0 27.0 25.0 23.0 21.0 19.0 17.0 15.0

August 14, 2013

Shree Cements | 4QFY2013 Result Update

Exhibit 3: 4QFY2013 Actual vs Angel estimates


(` cr) Net sales Operating profit Net profit
Source: Company, Angel Research

Actual 1,441 380 284

Estimates 1,494 405 228

Variation (%) (3.5) (6.3) 25.0

Performance highlights
Operating profit down 20.9% yoy
SRCMs top-line fell by 1% yoy to `1,442cr, with its cement business posting a 9.7% decline in revenue to `1,141cr. Cement volumes were down by 5.9% yoy impacted by demand de-growth in the companys key markets in North India. Realization fell by 6.1% on a yoy basis. The cement business posted a disappointing 35% yoy de-growth in its EBITDA, impacted by fall in realization and higher input costs. The weak performance of the cement business was to an extent offset by healthy performance of the power business which posted a top-line growth of 81%, aided by a 104% yoy growth in volume to 794MU. The power business posted an EBITDA of `84cr for the quarter (up 140% yoy). Overall the companys operating profit was down by 20.9% yoy.

Exhibit 4: Cement operational performance


Particulars (`) Realization/tonne Net Raw material cost/tonne Power & fuel cost/tonne Freight cost/tonne Other costs Operating profit/tonne Source: Company, Angel Research 4QFY13
3,575 435 575 738 596 932

3QFY13
3,632 434 404 735 742 1,088

5QFY12
3,805 404 620 699 559 1,321

chg(%) yoy
(6.1) 7.7 (7.2) 5.6 6.7 (29.4)

chg(%) qoq
(1.6) 0.2 42.5 0.4 (19.6) (14.3)

Exhibit 5: Segment-wise revenue break-up


Particulars (` cr) Revenue (Net) Cement Power EBIT Cement Power 93 166 225 69 336 65 (72.2) 155.2 (58.5) 139.9 1,141 308 1,154 289 1,263 173 (9.7) 78.2 (1.1) 6.8 4QFY13 3QFY13 5QFY12 chg (%) yoy chg (%) qoq

Source: Company, Angel Research

August 14, 2013

Shree Cements | 4QFY2013 Result Update

Investment rationale
One of the lowest-cost cement producers: SRCM is one of the lowest-cost cement producers in north India, primarily because of its captive power plant and lesser power consumption per tonne of cement (one of the lowest in the industry due to higher proportion of portland pozzolana cement PPC [~80%] in overall sales volumes) and lower freight cost as its grinding units are close to demand centers. Growth to be driven by capacity addition: SRCM plans to take its overall cement capacity to 21mtpa by FY2015-end, from the current capacity of 15.5mtpa, through expansions in Rajasthan, Bihar and Chattisgarh. The company has also commissioned new merchant power capacity of 300MW in two phases in October 2011 and January 2012. We expect these capacity additions to drive the companys revenue growth going ahead.

Outlook and valuation


We expect SRCM to post a 13.4% and 27.6% growth in its top-line and bottom-line respectively over FY2013-15E. At the current market price, we believe SRCM's cement business is trading at a fair valuation of EV/tonne of US$111 on current capacity. We maintain our Neutral rating on the stock.

Exhibit 6: One-year forward EV/tonne


160,000 140,000 120,000 EV (` mn) 100,000 80,000 60,000 40,000 20,000 0 May-05 May-12 Mar-04 Mar-11 Oct-04 Aug-03 Aug-10 Feb-07 Sep-07 Oct-11 Apr-01 Apr-08 Jan-03 Jan-10 Jun-09 Jun-02 Jul-06 Dec-05 Nov-01 Nov-08 Dec-12 Jul-13 EV/tonne US $80 US $110 US $140 US $170

Source: Bloomberg, Angel Research

Exhibit 7: Recommendation summary


Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements# Reco Buy Neutral Neutral Buy Neutral Neutral CMP (`) 1,161 174 45 64 170 3,950 1,699 Tgt. Price (`) 1,361 79 Upside (%) 17.3 24.0 FY2015E P/BV (x) 2.5 2.6 0.4 0.5 1.3 2.4 2.3 FY2015E P/E (x) 14.2 15.7 4.2 3.5 9.3 11.6 15.0 FY2013-15E EPS CAGR 4.5 4.4 35.1 6.1 3.7 8.7 8.2 FY2015E RoE (%) 18.2 17.2 9.0 14.3 15.2 22.7 16.6 EV/tonne^ US $ 99 126 65 23 67 111 165

UltraTech Cements Neutral

Source: Company, Angel Research; Note: *Y/E December; # Y/E June; ^ Computed on TTM basis

August 14, 2013

Shree Cements | 4QFY2013 Result Update

Company background
SRCM is a leading cement company in north India, with a current total capacity of 13.5mtpa spread across Rajasthan (11.7mtpa) and Uttarakhand (1.8mtpa). The company has ambitiously grown its cement capacity by five times in the past six years. In FY2011 alone, the company added 3.3mtpa of cement capacity and 1mtpa of clinker capacity. Also, the company has ventured into the power generation business and currently has 560MW of power generation capacity post the addition of 300MW in FY2012.

August 14, 2013

Shree Cements | 4QFY2013 Result Update

Profit and Loss statement


Y/E June (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amort. EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Exp./(Inc.) PBT (reported) Tax (% of PBT) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2010 3,642 34.2 2,204 313 610 159 1,121 1,439 56.0 39.5 570 868 21.1 23.8 129 129 14.8 868 20.1 868 192 22.1 676 17.0 18.6 194 194 17.0 FY2011 3,454 (5.2) 2,569 342 905 199 1,124 885 (38.5) 25.6 676 209 (75.9) 6.1 175 125 78.8 159 (81.7) 48 110 (99) (90.0) 258 (61.8) 7.5 74 74 (61.8) FY2012 5,898 70.8 4,252 598 1,500 319 1,835 1,646 86.0 27.9 873 773 269.5 13.1 235 163 23.3 700 340.7 12 688 70 10.1 630 144.2 10.7 181 181 144.2 FY2013 FY2014E FY2015E 5,567 (5.6) 4,029 523 1,513 314 1,680 1,538 (6.5) 27.6 436 1,102 42.6 19.8 193 211 18.8 1,120 60.0 1,120 115 10.3 1,005 59.4 18.0 288 288 59.4 6,316 13.5 4,641 576 1,690 343 2,032 1,675 8.9 26.5 489 1,187 7.7 18.8 192 213 17.6 1,207 7.8 1,207 181 15.0 1,026 2.1 16.2 295 295 2.1 7,162 13.4 5,322 669 1,943 373 2,338 1,840 9.8 25.7 491 1,349 13.7 18.8 185 231 16.6 1,396 15.6 1,396 209 15.0 1,186 15.6 16.6 341 341 15.6

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Shree Cements | 4QFY2013 Result Update

Balance Sheet
Y/E June (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Other long term liab. Long term provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Dep. Net Block Capital Work-in-Progress Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,582 416 725 441 967 615 3,927 2,951 2,199 752 967 1,592 4,042 2,875 1,167 729 1,196 308 1,467 499 456 512 892 575 3,976 5,188 3,748 1,440 178 2,535 205 1,545 459 401 684 1,889 (344) 4,014 5,338 4,184 1,154 761 2,203 205 1,743 370 528 845 883 859 5,183 5,888 4,673 1,215 661 2,603 205 2,416 783 653 980 1,034 1,381 6,066 6,138 5,164 974 1,411 3,003 205 2,701 771 798 1,131 1,208 1,493 7,087 3,927 35 1,798 1,833 2,106 (12) 35 1,951 1,986 1,689 (72) 357 16 3,976 35 2,699 2,734 963 (70) 370 17 4,014 35 3,809 3,844 1,046 (94) 370 17 5,183 35 4,692 4,727 1,046 (94) 370 17 6,066 35 5,713 5,748 1,046 (94) 370 17 7,087 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

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Shree Cements | 4QFY2013 Result Update

Cash flow statement


Y/E June (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decin Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Cash Flow from Financing Others Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (92) 509 416 82 416 499 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E 868 570 33 129 190 1,152 (1,183) (747) 129 (1,802) 610 53 557 110 676 156 125 (71) 888 (853) 396 125 (332) (0) (417) 57 (474) 688 873 1,233 163 70 2,561 (595) (1,339) 163 (1,771) (726) 86 (812) 18 (40) 499 459 1,120 436 (1,293) 211 115 (63) (733) 332 211 (190) 83 140 (57) (221) (89) 459 370 413 370 783 (12) 783 771 1,207 489 (109) 213 181 1,193 (450) (400) 213 (637) 143 (143) 1,396 491 (124) 231 209 1,323 (1,000) (400) 231 (1,169) 165 (165)

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Shree Cements | 4QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.1 0.1 6.7 (0.0) (0.0) 1.2 (0.7) (1.2) 3.3 (0.4) (1.0) 5.7 (0.5) (1.4) 6.2 (0.5) (1.5) 7.3 1.4 26 7 140 22 1.0 40 10 132 15 1.3 28 9 119 (22) 1.1 34 16 126 (10) 1.1 33 20 75 31 1.2 34 20 77 34 26.2 95.7 45.2 5.3 16.7 13.5 19.3 64.5 26.7 24.0 81.9 30.6 21.1 61.3 23.9 20.5 68.8 22.7 23.8 77.9 1.3 23.7 5.6 0.9 40.9 6.1 190.0 1.0 11.4 17.6 0.8 6.4 13.1 89.9 1.7 19.7 16.0 0.4 21.3 19.8 89.7 1.3 23.6 17.2 0.2 25.1 18.8 85.0 1.3 20.0 15.6 0.2 20.9 18.8 85.0 1.2 19.8 15.0 0.2 20.6 194.0 194.0 357.8 15.2 526.2 74.1 74.1 254.2 16.3 570.1 180.9 180.9 428.0 24.7 784.8 288.4 288.4 413.6 40.2 1,103.3 294.6 294.6 434.9 41.1 1,356.8 340.5 340.5 481.5 47.5 1,649.9 20.4 11.0 7.5 0.4 3.5 9.0 3.3 53.3 15.5 6.9 0.4 3.8 14.6 3.3 21.8 9.2 5.0 0.6 1.9 7.0 2.9 13.7 9.6 3.6 1.0 2.0 7.4 2.2 13.4 9.1 2.9 1.0 1.7 6.4 1.8 11.6 8.2 2.4 1.2 1.3 5.2 1.3 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

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Shree Cements | 4QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Shree Cements No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 14, 2013

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