Shree Cement: Caught between a rock and a hard place
₹9,164 crore was 22% below consensus estimates. This was largely due to a 6.3% year-on-year drop in its cement realization, a measure of pricing, as the hunger for sales volumes continued to keep the sector’s prices muted. But the fall in Shree’s realizations was higher than what analysts had estimated and sharper than that of some peers.
In its first-quarter earnings call, Shree’s management acknowledged that the company was facing tough competition in the northern markets from two large cement makers—UltraTech Cement Ltd and Ambuja Cements Ltd. This prompted Shree to sell more cement in the eastern markets, where prices are lower. Consequently, the share of the eastern markets in Shree’s overall volume mix in the June quarter stood at 35%, while the northern regions contributed 55%.
The balance came from Maharashtra and the southern markets. The shift in the regional mix meant a spike in freight costs and higher lead distance for the Kolkata-headquartered Shree Cement. The fallout First-quarter cement volumes at 9.6 million tonnes rose 8% year-on-year, higher than the industry average of 5-6%.
However, Shree’s market share gains came at a cost of realizations, leading to steep earnings downgrades by some brokerages. “Factoring in the lower realization, we cut our Ebitda estimates by 19% for FY25 and by 13% for FY26," Emkay Global Financial Services said in a report dated 7 August. True, petroleum coke and coal prices have stabilized and inventory lag could lead to some cost savings, acting as a lever for Shree’s profit margin, but the good news ends there.
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