Revenue Gains Offset by Rising Costs

Shree Cement's standalone revenue reached ₹5,640 crore in the fourth quarter of FY26, up 7.7% from the previous year and exceeding analyst expectations. This growth was driven by a 9.5% increase in sales volumes to about 10.8 million tonnes, indicating solid demand for its products. Prices also improved sequentially by 6% to ₹5,240 per tonne.

However, this strong volume performance couldn't overcome rising expenses. Profitability suffered, with EBITDA falling 9.5% year-over-year to ₹1,250 crore. Earnings per tonne dropped 16% to ₹1,179, primarily due to a 34% surge in raw material costs and a 6.6% rise in freight expenses.

Despite these cost pressures, Systematix brokerage upgraded Shree Cement to 'Buy' from 'Hold,' setting a target price of ₹29,185. The firm considers the current valuation attractive, noting the company's strong volume growth and ongoing capacity expansion. Shree Cement's market capitalization is around ₹90,000 crore, with trailing P/E ratios between 50-72.

Green Power Use Cuts Energy Costs

Shree Cement stands out with its significant use of green power, accounting for 61% of its total electricity consumption in the quarter, reportedly the highest among industry peers. Companies like UltraTech Cement, Ambuja Cements, and ACC reported lower green power shares, typically between 31.3% and 42.1% in recent periods.

By investing in renewable sources such as waste heat recovery, solar, and wind power, Shree Cement is better positioned to handle rising conventional fuel costs. This forward-thinking strategy in sustainability is crucial for maintaining cost competitiveness in its operations.

Industry Faces Cost Pressures, Demand Remains Strong

Across the Indian cement industry, companies are facing substantial increases in input costs, largely due to geopolitical tensions. Higher prices for petcoke, coal, and freight rates, worsened by supply disruptions, are expected to squeeze profit margins throughout FY27. Analysts anticipate a 6-11% drop in operating profit per tonne for the sector in FY27.

While companies are trying to raise prices, industry overcapacity and competition may limit how much costs can be passed on. Price increases are expected to be modest, perhaps 1-4%.

Despite these margin challenges, cement demand is still strong, with forecasts of 7-8% volume growth for FY27. This is mainly supported by government spending on infrastructure projects like roads and railways. However, the housing sector is showing signs of weakness.

Risks: Input Costs and Market Dynamics

The main risk for Shree Cement and the broader industry is the ongoing volatility of input costs. Current geopolitical situations have sharply increased crude oil prices, affecting fuel and packaging expenses. This could raise total production costs by ₹150 to ₹200 per tonne. If companies cannot pass these higher costs onto customers through price hikes, EBITDA margins could shrink further.

While Shree Cement's green power initiatives provide some protection, it's unclear if they can fully counter industry-wide cost increases. Historically, high oil prices have led to fluctuating cement stock performance.

Additionally, while infrastructure projects support demand, a slowdown in the housing market could lead to oversupply, weakening pricing power for cement companies.

Analyst Views Mixed on Growth Potential

Systematix initiated coverage with a 'Buy' rating and a ₹29,185 price target. However, most analysts maintain a more neutral view. Reports show a consensus 'Neutral' rating from 40 analysts, with an average 12-month price target around ₹27,727.85, suggesting limited further gains. Nomura recently lowered its price target to ₹28,000 from ₹34,000 but kept its 'Buy' rating.

Shree Cement aims to reach 80 MTPA capacity by 2030, supported by its strong green energy use. This provides a basis for future growth. However, the short-to-medium term will focus on balancing rising input costs with opportunities to capitalize on market demand.