Huge cash flows, low production cost set to boost investor returns

Shree Cement's results for the quarter to March were broadly in line with the expectations of the street. The company achieved higher volumes in the power division and lowered its power and fuel costs.

With huge cash flows and a low production cost model, the cement maker is poised to provide significant returns in the medium to long term. The company sold 722 million units of power in the quarter, 70% more than in the same period a year ago.

Despite the power tariff remaining flat on a year-onyear basis, a correction in fuel costshelped the company achieve positive earnings before interest and tax (EBIT) of Rs 69 crore against a loss of Rs 69 crore last year.

The company's input costs for the power division remain below the industry average due to the usage of pet coke, which is much cheaper than coal. The cement division saw a 6% decline in volumes as demand remained subdued.

Despite the quarter being seasonally strong for cement companies, realisations for 
Shree cementBSE 1.80 % remained flat at Rs 3,631 per tonne. The fall in power and fuel costs also benefited the segment as this cost centre constitutes nearly 33-38% of the total cement production cost.

Depreciation at Rs 127 crore exceeded expectations as the company wrote off higher amounts on existing and new plants. This, however, has resulted in the company already deducting 70-80% of capital expenditure on its power plants and will make these assets virtually free in the next couple of quarters.

On the tax front, the company availed Rs 49 crore of 
MAT Credit, aiding the northbased cement maker to attain 140% growth in net profits at Rs 274 crore.