Shree Cement, one of India’s leading cement manufacturers, reported its second-quarter earnings for the fiscal year 2024-25, revealing a significant 81% decline in net profit to ₹93 crores compared to ₹491 crores in the same quarter last year. Despite this sharp drop, the results exceeded analyst expectations, primarily due to higher-than-anticipated sales volumes.
Key Financial Highlights for Q2 FY2024-25
On November 11, 2024, Shree Cement disclosed its financial performance for the quarter ending September 30:
- Net Profit: ₹93 crores (down 81% YoY)
- Revenue from Operations: ₹37.27 billion (down 18% YoY)
- Sales Volume Growth: 7%, surpassing analyst estimates of a decline
The company’s revenue fell short of analysts’ expectations, which had projected revenue of ₹38.91 billion.
Volume Growth Amidst Price Challenges
While Shree Cement experienced a decline in revenue, it logged a 7% increase in sales volume during the quarter. This growth was less than the 10% volume growth recorded in the previous year but was still stronger than the estimates provided by analysts, who anticipated a decline of up to 8%.
Market Context
The cement industry has faced challenges with prices hitting a five-year low and demand remaining sluggish due to factors such as extended monsoons and slower construction activities. However, there are signs of optimism as companies like UltraTech Cement have reported early indications of a price recovery.
Analyst Insights and Future Outlook
Despite the significant drop in profits, analysts remain cautiously optimistic about Shree Cement’s future performance:
- Cost Management Strategies: The company has implemented cost optimization measures that have helped mitigate some impacts of lower prices.
- Long-term Demand Outlook: Analysts expect gradual improvement in demand driven by increased government spending on infrastructure projects and recovery in both urban and rural segments.
Management Commentary
Neeraj Akhoury, Managing Director at Shree Cement, commented on the company’s performance:“Despite strong headwinds on account of extended monsoon and softer pricing environment across the industry, Shree Cement has delivered a steady performance on the back of accelerated operational efficiency measures and focused cost optimization drives.”
Expansion Plans
Shree Cement is actively pursuing expansion projects to enhance its production capacity. Current projects include:
- Jaitaran, Rajasthan: 6.0 MTPA
- Kodla, Karnataka: 3.0 MTPA
- Baloda Bazar, Chhattisgarh: 3.40 MTPA
- Etah, Uttar Pradesh: 3.0 MTPA
These projects are expected to be commissioned by the first quarter of FY25-26.
Conclusion: Should You Invest in Shree Cement?
Given the mixed results from Shree Cement’s Q2 performance—an alarming drop in profits offset by strong volume growth—investors should consider several factors before making investment decisions:
- Market Conditions: The current pricing environment poses challenges, but signs of recovery could benefit future earnings.
- Expansion Initiatives: The ongoing expansion projects may enhance production capacity and drive future growth.
- Long-term Demand Potential: Increased government spending on infrastructure could lead to improved demand for cement.
Investors should weigh these considerations against their risk tolerance and investment strategy when deciding whether to invest in Shree Cement shares. Disclaimer: This analysis is for informational purposes only and should not be considered financial advice. Always conduct your own research or consult with a financial advisor before making investment decisions.
