Shree Cement, is the first cement player to report its results for the September 2006 quarter

Shree Cement, is the first cement player to report its results for the September 2006 quarter, posting an impressive performance, thanks to higher sales volumes and improved price realisations. Shree Cement Ltd also said on Tuesday it would expand annual capacity by 3Mt from its current capacity of 4.5Mta.

The company’s operating profit has grown a whopping 173 per cent y-o-y to Rs 142.67 crore in Q2 FY07 compared with 103.4 per cent growth in net sales to Rs 315.95 crore. Also, the firm has seen its operating profit margin improve by 1156 basis points y-o-y to 45.16 per cent in the September quarter. Despite improved results in the last quarter, the stock dipped 3.6 per cent to Rs 1096.85 on Tuesday. However, prior to Tuesday’s dip, the stock had gained 35.5 per cent over the past three months compared with 15.7 per cent rise in the Sensex.

Although not strictly comparable, in the June quarter, its operating profit margin improved by 1330 basis points to 44.4 per cent. Its cement sales grew 44.1 per cent y-o-y to 11.1 lakh tonne in Q2 FY07, helped by its third unit coming on-stream in February, which has increased its capacity by 1.5 million tonne. Shree Cement did have to grapple with rising freight costs, given the well documented Supreme Court judgement banning overloading of trucks. However, rising input costs appear to be fully offset, as realisations have improved by 29 per cent y-o-y to Rs 2846 per tonne in Q2. In the June quarter, its realisations had improved by 35 per cent y-o-y to Rs 2620 levels, say analysts.

Clearly, if one were to use Shree Cement’s last quarter results as a benchmark, other players are also expected to see a similar sharp rise in their quarterly performance. The Shree Cement stock trades at 13 times estimated FY07 earnings, which seems reasonable given the growth potential in the medium term.