Shree Cement Expects Q2 Profit Lift After Fuel Cost Peak

Shree Cement Limited — Q1 FY27 Earnings Call (held on 31 July 2026)

1. Overall Tone of Management: Optimistic

• Management repeatedly frames Q1 as “abnormal” and expects improvement: “I expect to do better Q2 onwards, if nothing untoward happens on Middle East front.”
• They highlight stabilization/peak in costs: “we have almost peaked out in Q1… this cost should more or less stabilize or rather go down.”
• They maintain confidence in volume delivery while emphasizing profitability: “we are profit focused… we should reach 40 million tons… and deliver healthier profit Q2 onwards.”

2. Key Themes from Management Commentary

• Consolidated reporting shift (strategy/communication): Management asks analysts to focus on consolidated numbers due to growing overseas/subsidiary contribution: “start looking at the consolidated results and not standalone results.”
• Middle East war disruption as the main Q1 driver (cost + mix):
• Pet coke and Omani gypsum contracted quantities did not arrive, forcing coal substitution and higher-cost/lower-quality gypsum.
• This caused:
  • higher raw material and fuel costs,
  • conversion factor drop (clinker-to-cement ratio impact),
  • shift toward non-trade sales due to inability to push trade premium mix.
• Cost outlook: fuel cost “peaked” and should stabilize:
• Fuel cost cited at ~1.95 per kcal, with expectation it won’t materially rise unless Gulf situation worsens.
• Packing cost and PVC prices improving; pet coke arrivals starting.
• Profit-first stance with volume guidance maintained:
• Explicitly says they are not volume focused but still guides volumes and expects profit improvement from Q2.
• UAE expansion narrative (growth engine):
• UAE doubling capacity at Ras Al Khaimah expected to be upstream by Q3 FY26-27.
• They argue UAE and Eastern market penetration should improve consolidated performance.

3. Q&A Analysis

Theme A: Housekeeping / operating metrics (fuel cost, clinker factor, realization, trade vs non-trade)

• Core questions
• Fuel cost (blended/trade mix), clinker conversion factor, cement realization
• Trade vs non-trade mix and how Q2 should normalize given pet coke procurement
• Consolidated vs standalone comparability
• Management response
• Fuel cost: ~1.95 per kcal
• Realization (Indian operation): INR 4,919/MT vs INR 4,854 (June quarter YoY)
• Clinker conversion factor: 1.50 vs 1.58 (YoY)
• Trade mix: 62% trade vs 71% (June ’25); blended ratio 60% vs 70%
• Consolidated: volume 114.5 (consol) and operational EBITDA 1,272 (excluding other income)
• Evasive/partial/strong points
• Strong push to use consolidated numbers; refuses to provide UAE-level EBITDA/revenue details later.
• Q2 normalization framed as conditional: “barring anything untoward… fuel price have almost peaked out.”

Theme B: Normalization of trade/non-trade mix and sustainability

• Core questions
• Why non-trade increased; will trade mix revert to historical targets?
• Whether gypsum vs coal drove the trade/non-trade shift
• Management response
• Clarified sharply: gypsum affects raw material cost, not trade/non-trade shift.
• Trade/non-trade shift attributed to low-quality coal → higher ash absorption → constrained conversion factor → more OPC → non-trade demand fit.
• Target mix: wants to return to ~70% trade / 30% non-trade, but admits Q1 was forced: “Why should I hurt my delta?”
• Evasive/partial/strong points
• “Hopefully” language on normalization timing (less firm than earlier guidance).
• Uses technical explanation (coal ash → conversion factor → market segment) to justify mix change.

Theme C: UAE / consolidation transparency (UAE EBITDA, revenue, contribution)

• Core questions
• UAE share of consolidated EBITDA (and/or UAE EBITDA per ton)
• UAE revenue numbers and whether UAE performance is improving
• Management response
• Refuses to disclose UAE-specific EBITDA/revenue:
  • “I’m not going to share it.”
  • “I will not disclose this number.”
• Provides only consolidated grey cement EBITDA/quantity and asks analysts to “figure it out.”
• Evasive/partial/strong points
• Multiple direct refusals; one analyst explicitly asked for UAE share of INR200+ cr consolidated EBITDA and got a deflection: “You are not going to get this answer from me.”
• This is a credibility/visibility red flag given the earlier push to consolidated reporting.

Theme D: Demand outlook, pricing, and cost trajectory

• Core questions
• Will H2 costs be lower than H1?
• Industry demand growth and whether Shree can “catch up”
• Pricing outlook and whether cost increases are covered
• Management response
• Costs: expects improvement if Middle East remains calm; Q2 should be better than Q1.
• Demand: industry expected ~7–8%, hopes to do ~10%; also references East incremental demand.
• Pricing: repeatedly says price is market-related and they won’t forecast EBITDA/price.
• Evasive/partial/strong points
• They avoid quantitative EBITDA guidance: “we never give any EBITDA projections.”
• Pricing questions answered with “logical conclusion” rather than numbers.

Theme E: Capex / Northeast expansion / RMC scaling

• Core questions
• Capex guidance for FY27-28; Northeast plant economics and timeline
• RMC plant ramp and profitability trajectory
• Management response
• Capex: maintains INR 1,500 crores for India operation (Q1 spent ~INR 456–500 crores).
• Northeast: commissioning timeline referenced as Q4 FY28; economics framed as learning steps and scaling to 4–5 million tons final capacity.
• RMC: 26 operational plants now; added 8 plants in the quarter, intends another 10 next quarter; RMC currently “profit-neutral” with EBITDA margin improvement expected as scale rises.
• Evasive/partial/strong points
• Consol capex guidance for UAE not provided; later admitted: “I don’t have it… I will share it.”

Theme F: Cost levers (freight, rail, renewable, BESS, ECVs)

• Core questions
• Freight/lead distance changes; rail share; WHRS/RE targets; BESS progress
• Management response
• Lead distance down QoQ: 459 → 445; rail mix ~9% in quarter.
• Renewable energy share increased: 61% → 66%.
• ECVs: committed to ~100 e-commercial vehicles this year; exploring electric in mining.
• BESS: small implementation; viability depends on 85% usable energy (15% loss).
• Freight/rail: working on lead distance and sidings; railways deliver at their pace.
• Evasive/partial/strong points
• No hard savings quantified beyond qualitative statements.

4. Guidance / Outlook

Explicit guidance (quantitative)

• Volume guidance (India operations, cement):
• FY26-27 target reiterated: 40 million tons (management “sticking to guidance”).
• Q2 run-rate: expects ~9 to 9.5 million tons in Q2.
• H1 expectation: ~19.5 to 20 million tons by HY1.
• Capex (India operation):
• FY27-28 capex maintained at ~INR 1,500 crores for the year.
• Q1 capex spent: ~INR 456–500 crores (management clarified ~INR450+ crores).
• RMC expansion:
• Added 8 plants in Q1, intends another 10 next quarter (toward scaling).
• Northeast commissioning:
• Plant commissioning referenced as Q4 FY28.
• Fuel cost expectation:
• Fuel cost “almost peaked” at ~1.95 per kcal, with only ~INR 0.02–0.03 potential movement (unless Middle East worsens).

Implicit signals (qualitative)

• Q1 is “non-comparable/abnormal”; management expects better profitability from Q2 onwards.
• Trade/non-trade mix should normalize toward historical ~70/30 if Middle East stabilizes.
• Fuel and raw material costs should stabilize or decline as pet coke arrivals resume and gypsum cost eases.
• UAE expansion should improve consolidated performance as capacity ramps by Q3 FY26-27.

5. Standout Statements (direct / highly revealing)

• On Q1 abnormality: “Please consider Q1 as an abnormal quarter. I expect to do better Q2 onwards…”
• On cost peak: “fuel price have almost peaked out… this cost should more or less stabilize or rather go down.”
• On consolidated reporting: “start looking at the consolidated results and not standalone results.”
• On trade/non-trade cause (technical):
  “Gypsum has no role to play in shift from trade to non-trade… It is only that weaker quality of coal affects my clinker quality, which affects my conversion factor.”
• On refusal to disclose UAE economics:
  “I’m not going to share it.” / “You are not going to get this answer from me.”
• On profit focus: “We are never volume focused, we are profit focused.”
• On cost levers (renewables): “renewable energy component… increased from 61% to 66% in this quarter.”
• On capex transparency (UAE vs India): “INR1,500 crores is India operation… UAE expansion… funded out of UAE operations only.”

6. Red Flags / Positive Signals

Red flags
– UAE transparency gaps: repeated refusal to provide UAE EBITDA/revenue contribution despite analysts asking directly.
– Consolidated vs standalone comparability push could be seen as shifting goalposts (though justified by growing subsidiary contribution).
– Conditional optimism: many improvements depend on “barring anything untoward” / “if calm remains”—limited control over key drivers.
– Capex guidance inconsistency risk: India capex provided; consol capex for the whole group not clearly quantified in this call.

Positive signals
– Clear technical explanation for conversion factor and mix shift (coal ash → clinker → conversion factor → OPC → non-trade).
– Cost “peak” narrative is specific (fuel cost ~1.95/kcal; small incremental movement).
– Renewable share improvement (61% → 66%) and active cost-lever initiatives (ECVs, BESS pilot).
– Maintains volume guidance and expects profit recovery from Q2.

7. Historical Comparison & Consistency Analysis (vs prior 3 calls provided)

a. Change in Tone Over Time

• Q4 FY26 (May 2026): management tone was constructively positive—talked about strong year, improving realizations, and UAE performance; acknowledged Middle East tension but framed as manageable.
• Q3 FY26 (Feb 2026): tone was value-over-volume disciplined, with confidence in demand and pricing; less emphasis on “abnormal quarter.”
• Q2 FY26 (Oct 2025): tone was optimistic around GST cut benefits, premiumization progress, and UAE “best ever quarterly performance.”
• Current Q1 FY27 (Jul 2026): tone is optimistic but more defensive, explicitly calling Q1 abnormal and attributing underperformance to Middle East supply chain disruptions.
• Classification shift: More Cautious → Optimistic (conditional)
• They are optimistic about Q2 recovery, but the need to label Q1 “abnormal” suggests a more fragile quarter than earlier calls.

b. Tracking Past Commitments vs Outcomes

• Past statement (May 2026 / Q4 FY26): “fuel cost peak out” / cost stabilization expectations were discussed, but not as explicitly as now.
• Current call outcome: management claims fuel cost already peaked in Q1 (stronger than “peak in Q2” earlier in this call’s narrative).
• Past statement (Feb 2026 / Q3 FY26): RMC ramp and capex visibility; RMC scaling was a consistent theme.
• Outcome: RMC now at 26 operational plants with 8 added in Q1 and 10 more planned—consistent with ramp narrative.
• Past statement (Oct 2025 / Q2 FY26): premium share target ~21% and maintain run-rate.
• Outcome: current call does not quantify premium share; instead focuses on trade/non-trade mix disruption. This is a partial drop in metric visibility rather than a clear miss.

(Note: the transcript provided does not include explicit earlier “conversion factor” targets; however, conversion factor deterioration is clearly attributed to coal quality in this call.)

c. Narrative Shifts

• From “value over volume” to “supply-chain forced mix shift”:
• Earlier calls emphasized pricing discipline and premiumization.
• Now, the dominant narrative is Middle East war causing pet coke/gypsum non-arrival, leading to conversion factor drop and non-trade shift.
• From standalone transparency to consolidated-only framing:
• Management now strongly requests consolidated-only analysis; earlier calls already discussed consolidation but not with this intensity.

d. Consistency & Credibility Signals

• Credibility improves on technical causality: coal ash → clinker conversion factor → segment mix is explained consistently and plausibly.
• Credibility weakens on disclosure: repeated refusal to provide UAE-specific EBITDA/revenue numbers reduces external verification.
• Overall credibility (communication consistency): Medium
• Strategy consistency (profit-first, cost levers, RMC ramp) is strong.
• Disclosure consistency (especially UAE economics) is weaker.

e. Evolution of Key Themes

• Demand: consistently expects industry growth and aims to grow slightly faster; now adds East/UAE incremental demand from capacity ramp.
• Margins/costs: earlier calls focused on premiumization and cost efficiency; current call focuses on cost shock from fuel/gypsum substitution and expects normalization.
• Expansion: RMC and Northeast remain consistent; UAE expansion becomes more central now (consolidated emphasis).
• Sustainability/RE: renewable share continues to rise (61% → 66% in this quarter), consistent theme.

f. Additional Insights (cross-period intelligence)

• Increasing defensiveness around comparability: the “consolidated-only” push plus refusal to disclose UAE economics suggests management is managing analyst interpretation risk as overseas contribution grows.
• Q1 appears to be a structural operational constraint quarter (conversion factor constrained by coal quality), not merely pricing—this could imply more volatility in trade premiumization than management previously implied.