Shree Cement volume growth rebounds as fuel costs pressure first-quarter margins

Investment View and Valuation

Motilal Oswal Financial Services (MOFSL) reiterated its Neutral rating on Shree Cement following the July 31, 2026 results update. The broker retained its FY27E and FY28E EBITDA estimates, considering the stock fairly valued at 20 times FY27E and 17 times FY28E EV/EBITDA. It derives a target price of Rs 27,000 using 17 times FY28E EV/EBITDA, compared with the CMP of Rs 26,055.

Shree Cement delivered strong volume growth in 1QFY27, but operating profitability was below MOFSL's expectations because of elevated costs.

1QFY27 Financial Performance

Standalone revenue rose around 14 per cent year on year to Rs 5,620 crore, supported by around 17 per cent volume growth to 10.5 mt, in line with MOFSL's estimate. Standalone cement realisation increased around 1 per cent year on year and around 4 per cent quarter on quarter to Rs 4,919 per tonne. Consolidated volume stood at 11.5 mt, compared with 10.0 mt in 1QFY26.

Cost Pressures and Margin Impact

The cost pressure reflected temporary supply-chain disruption related to the Middle East conflict. Delayed contracted petcoke shipments forced an unfavourable fuel-mix change, with petcoke's share falling to around 9 per cent from around 54 per cent and coal's share rising to around 74 per cent from around 26 per cent.

Disruption to contracted gypsum imports from Oman required more expensive domestic gypsum procurement. Fuel cost increased to around Rs 1.95 per kcal from around Rs 1.82 per kcal. Lower-quality coal also increased ash absorption in clinker, reduced the clinker conversion factor to 1.5 times from 1.58 times in 1QFY26, and limited the use of supplementary cementitious materials.

The resulting higher proportion of OPC increased lower-margin non-trade sales and compounded production-cost and realisation pressure.

Demand, Volumes and Capacity Utilisation

Management maintained a constructive demand outlook and FY27 volume guidance of around 40 mt. July 2027 volume of around 3.1 mt indicated healthy early-2QFY27 demand. Overall capacity utilisation was around 62 per cent, comprising around 66 per cent in the North, 60 per cent in the East and 57 per cent in the South.

• South dispatches increased around 50 per cent year on year to 1.69 mt following new capacity commissioning.
• North volume rose around 20 per cent year on year.
• East volume was broadly flat.
• Trade sales represented around 62 per cent of volume, compared with around 71 per cent in 1QFY26.
• Blended cement share declined to around 60 per cent from around 70 per cent.

Management's long-term objective remains a 70:30 trade/non-trade mix. Shree Cement operated 33 ready-mix concrete plants versus 26 at the start of the year, while RMC revenue rose to Rs 109 crore from Rs 90 crore in 4QFY26.

Cost Normalisation and Capex Outlook

Management believes fuel costs largely peaked in 1QFY27, earlier than its prior expectation of 2QFY27, as contracted petcoke shipments have started arriving. It expects the fuel mix, gypsum availability and raw-material costs to normalise. Declining PVC prices should also lower packing-material costs.

Shree Cement retained its FY27 capex guidance of Rs 1,500 crore, with Rs 460 crore spent in 1QFY27.

Earnings Outlook and Monitorables

MOFSL estimates FY26-FY28 revenue, EBITDA and PAT CAGRs of 10 per cent, 9 per cent and 11 per cent respectively. It expects volume CAGR of around 10 per cent after muted FY24-FY26 volume growth.

The broker's central monitorables are improvement in Shree Cement's cost curve and higher capacity utilisation.

Key Risks to the Recovery

• Further geopolitical escalation or continuing supply disruption.
• Slower-than-expected normalisation of fuel, gypsum and other input costs.
• Weaker capacity utilisation.
• Inability to restore clinker conversion, blended cement and higher-margin trade-sales mix.