Shree Cement sees profit booking after sequential decline in Q1 earnings

Shree Cement, the third-largest cement producer in India, doubled its consolidated net profit for the quarter ended June 30, 2021 compared with the year-ago period while its net revenue climbed almost 50%.

Net profit rose to Rs 667.4 crore from Rs 318.3 crore in the first quarter of 2020-21. Net sales shot up to Rs 3,634.8 crore from Rs 2,486.7 crore.

However, the company recorded a deterioration in the topline as well as its bottomline on a sequential basis with revenue shrinking 14% and net profit sliding by almost 19% compared with the quarter ended March 2021.

Shree Cement also performed below expectations with respect to its operational cost parameters even though it improved realisations during the quarter. From a volume perspective, lower clinker sales affected overall growth.

The company’s shares, which had risen almost 50% over the past year, have seen some profit booking lately.The stock declined 3.5% in mid-day trades in a strong Mumbai market on Tuesday. The company announced its quarterly financials for April-June 2021 after trading hours on Monday.

Other key details

       The company has low debt-servicing expenses.Almost half of its expenses are from logistics and power and fuel cost.

       Higher fuel costs did add to its cost base in the first quarter. The company’s freight and forwarding expenses, too, rose sharply.

       Shree Cement plans to increase its production capacity to 80 million tonnes by 2030 by exploring new regions and through both organic and acquisition-led strategy.

       The company’s expansion is moving at a slower pace than expected, due partly to the Covid-19 pandemic.

Management commentary

Shree Cement said it has considered the possible effects that may result from Covid-19 and believes that the pandemic is unlikely to make an impact on the recoverability of the carrying value of its assets as of June 2021.

However, it added that the extent to which the pandemicwill impact its financial results in the future is uncertain and will depend on further developments.

The company is next only to UltraTech and Holcim in terms of size and capacity of cement produced in the country. It is particularly strong in north India, which bore the brunt of the pandemic’s second wave in April-May this year.