Shree Cement enjoys an edge in cost control. But is that enough?
A penny saved is a penny earned seems to be the mantra that helped Shree Cement Ltd improve its profitability in a challenging quarter.
Standalone Ebitda at ₹947 crore exceeded consensus estimates in the December quarter (Q3FY25) mainly due to a lower power and fuel cost. Operating cost eased to a multi-quarter low of ₹3,750 per tonne in Q3. There is room for further improvement on this metric as Shree Cement has secured a fuel supply contract at a relatively lower cost of ₹1.5 per kcal, effective Q1FY26. Other initiatives, including increased usage of green power and alternative fuels, would lead to more cost optimization.
But the stock’s unimpressive performance versus close competitor and sector bellwether UltraTech Cement Ltd suggests that being a low-cost producer is not enough. Shree Cement has gained 8% so far in FY25 compared to 17% returns by UltraTech.
One problem is that Shree Cement is lagging in volume growth. At 8.8 million tonnes, volume fell 1% year-on-year, in comparison to the industry’s likely growth of 5-6% in Q3FY25. This indicates market share loss for Shree Cement for the second consecutive quarter.
Akin to peers, Shree Cement is also adding capacities and will commission 15.4 mt of cement capacity by Q1FY26, across Rajasthan, Uttar Pradesh, Chhattisgarh and Karnataka. With ongoing expansions, its total domestic grey cement capacity is likely to reach 72 mtpa in FY26. Capital expenditure is likely to be ₹4,000 crore annually over FY25-28.
Also Read: Cement prices surged the most in northern India in Q3. Is there space for more?
According to Elara Securities (India), Shree Cement’s capacity is likely to remain more skewed to north India, where utilization is expected to be higher than pan-India average. Completion of these expansion projects should help the company regain its market position, driving volume outperformance in FY26-27. However, in FY25 it is likely to underperform the industry with modest volume growth of around 1%, added the Elara report dated 31 January.
Remember, in contrast to peers, who are aggressively chasing volumes, Shree Cement is following the strategy of value over volumes. This has translated into around a 3% sequential rise in realization as against around 1-1.5% growth for the industry, noted Nuvama Research.
However, considering the company’s low utilizations and elevated competition, this strategy may not be sustainable and keeps Shree Cement exposed to market share loss risk in the the near term. Plus, valuation leaves no room for error. On FY26 EV/Ebitda, the stock is trading at multiples of around 20 times, showed Bloomberg data. This is almost at par with UltraTech and at a premium to ACC Ltd and Ambuja Cements Ltd.
Also Read: Cement’s growth surge: 50% CAGR projected by 2027 – Are these stocks ready?
