Shree Cement volume growth accelerates as cost efficiencies support margin recovery

Investment View and Valuation

In its August 3, 2026 result update, ICICI Direct Research retained a HOLD rating on Shree Cement and revised its target price to Rs 29,000. The broker’s thesis is that healthy cement-volume growth and a recovery in EBITDA per tonne through FY28E can offset near-term input-cost pressure.

Shree Cement is described as India’s third-largest cement producer, with installed capacity of 69.3 million tonnes per annum. ICICI Direct estimates revenue, EBITDA and PAT CAGR of about 11 per cent, 13 per cent and 16 per cent, respectively, over FY26 to FY28E, after trimming EBITDA estimates for higher input costs. The target valuation is based on 17 times FY28E EV/EBITDA.

Q1 FY27 Operating and Financial Performance

Shree Cement reported Q1 FY27 operating income of Rs 5,622.7 crore, up 13.6 per cent year on year and down 0.4 per cent quarter on quarter. Revenue growth was driven by a 17.2 per cent year-on-year rise in volumes, although realisation declined 3 per cent year on year. Reported sales volume was 10.49 million tonnes, supported by favourable demand and higher capacity utilisation.

Overall capacity utilisation improved to about 62 per cent in Q1 FY27 from about 57 per cent in Q1 FY26. Utilisation was 66 per cent in North India, 60 per cent in East India and 57 per cent in South India. South volumes rose from 1.1 million tonnes to 1.69 million tonnes, North volumes grew 20 per cent and East volumes were broadly flat.

Margin Pressure and Management Response

Profitability was weak because total cost per tonne increased 4.3 per cent year on year and 6.3 per cent quarter on quarter, mainly owing to higher power, fuel and packaging costs. Management characterised Q1 FY27 as abnormal, citing a lower conversion factor and higher non-trade sales that temporarily affected premiumisation.

Management intends to improve conversion factors, optimise costs and increase trade sales. Premiumisation and trade-sales momentum are expected to improve from Q2 FY27.

Fuel Costs, Raw Materials and Efficiency Measures

Fuel and raw-material disruptions were central to the cost pressure. Petcoke usage dropped from 54 per cent to 9 per cent, while coal rose from 26 per cent to 74 per cent. Middle East disruption delayed contracted lower-cost petcoke and forced purchases of higher-cost, lower-quality coal. An Omani gypsum supply disruption also required higher-priced domestic gypsum.

Management believes fuel costs have largely peaked and could stabilise or decline from Q2 FY27 if there is no further Middle East disruption. Gypsum costs could moderate as Omani supply normalises.

• Green-power share increased to 65 per cent in Q1 FY27 from 61 per cent in Q4 FY26.
• Lead distance declined to 445 km from 457 km.
• The clinker factor improved to 1.50 times from 1.58 times.
• The company is altering its fuel mix and using electric commercial vehicles.

Volume and Capacity Expansion Outlook

Management retained FY27E volume guidance of about 40 million tonnes, implying about 10 per cent growth, compared with expected industry growth of about 7-8 per cent. Shree Cement’s capacity is about 70 million tonnes, and management targets about 80 million tonnes by FY28E or FY29E.

The North-East project is targeted for commissioning in Q4 FY28, with initial capacity of about 1 million tonnes and infrastructure for eventual capacity of 4-5 million tonnes.

Broker Estimates

Key Risks

• Demand slowdown.
• Delays in capacity expansion.
• Higher commodity prices.
• Intense competition.