Shree Cement Faces Risks Amid Strategic Shift Post Q2 Results

Shree Cement Ltd. has adopted a strategy of prioritising value over volume, focusing on premium products and selective market engagement. In the September quarter of FY25, this approach stabilised realisations at ₹4,447 per tonne, maintaining levels from the previous quarter, while the industry experienced declines. The company increased premium product sales to 15% from 9% in Q1 and reduced non-trade sales, contributing to this stability.

Impact on Sales Volume

Despite stable realisations, Shree Cement’s sales volume decreased by 7% year-on-year to 7.6 million tonnes, marking an eight-quarter low. This decline suggests a loss of market share in key regions. 

The company’s EBITDA stood at ₹593 crore, falling short of analysts’ expectations, with capacity utilisation around 56% during the quarter. Management anticipates demand recovery in the second half of FY25, driven by increased infrastructure spending.

Capacity Expansion Plans

Shree Cement plans to commission approximately 15 million tonnes per annum (MTPA) of additional capacity over the next six to nine months, aiming for a total capacity of 80 MTPA by FY28, up from the current 56.4 MTPA. 

These expansions are spread across northern, eastern, and southern markets, enhancing geographical diversification. The company favours organic growth over acquisitions, focusing on prudent capital allocation. However, the slower pace of organic expansion may result in lower volume growth than competitors.

Market Performance

As of November 13, 2024, Shree Cement’s stock reached a new 52-week low of ₹23,300. Year-to-date, the stock has declined by 16%, underperforming the Nifty50 index and peers in the cement industry. 

The stock trades at approximately 16 times the estimated FY26 EV/EBITDA, below its long-term average of around 21 times. This underperformance may continue in the near term due to potential further market share losses and possible valuation adjustments.

Shree Cement’s Share Price Performance

On November 13, 2024, Shree Cement’s share price closed at ₹24,011.05, down ₹361.75 (1.48%) from the previous day. The day’s trading opened at ₹24,300.20, reached a high of ₹24,300.20, and a low of ₹23,925.60.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.