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Capacity expansion to drive growth
Margins improve on lower costs
* Healthy volume growth:
4QFY19 volumes (including clinker) increased ~13.3% YoY to 7.3mt (our est. 7.04mt). Realizations increased ~1.6% YoY to INR4,225, while revenue grew 17% YoY to INR32.8b (our est. INR33.1b). Cement revenue grew 15% YoY to INR30.8b, while Power revenue was up 52% YoY to INR2.0b.
* Easing cost pressures drive margins:
Total cost/t declined 2% YoY. Power EBITDA at INR430m, resulted in cement EBITDA/t growing 15% YoY to INR1,103/t). Thus, EBITDA was up 35% at INR8.5b (in-line). Overall, margins were up 3.4pp YoY at 25.8%. Tax rate stood at 20% in 4QFY19 v/s 13% in 4QFY18, thus, reported PAT declined 20% YoY to INR3.2b (our est. INR3.5b).
* Key highlights:
(1) Company has announced a cement grinding unit of 3mt at a capex of INR5.2b in Pune; it should get commissioned by Sep’20. (2) 4QFY19 average fuel cost has decreased to INR8,670/t from INR8,900/t in 3QFY19. (3) With focus on healthy realization, the company has seen trade sales at 73% in FY19 v/s 67% in FY18. (4) Cement utilization for SRCM in North India is 76%, while it is 100% for East India. Its plant in the South is operating at a utilization of 30-35%.
* FY19 performance: Volumes grew 15% YoY, resulting in sales growing 19% YoY to INR117b. EBITDA grew 15% YoY to INR28b, while PAT declined 6% YoY to INR12.6b due to higher depreciation and interest cost.
* Valuation and view:
We increase our PAT estimate by 2% for FY20 and by 4% for FY21, led by 2% increase in EBITDA estimate due to higher realization assumption and cost savings. We value SRCM at 15.5x June’21 EV/EBITDA and arrive at a Target Price of INR23,400. Buy
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