/** Title: Shree Cement Q1 FY27: Disruptions Hit Blending, Management Bets on Q2 Normalisation */

Shree Cement Q1 FY27: Disruptions Hit Blending, Management Bets on Q2 Normalisation

Shree Cement’s Q1 FY27 earnings call was less about celebrating quarterly performance and more about explaining why the quarter should be treated as “abnormal”. Management attributed the margin pressure primarily to the Middle East conflict, which disrupted shipments of two critical inputs, pet coke and Omani gypsum. The company was forced to replace contracted pet coke with higher-cost coal and substitute Omani gypsum with more expensive, lower-quality domestic gypsum.

Alongside the operating commentary, the most important framing change was strategic. Management asked analysts to shift from standalone to consolidated analysis. It said the overseas subsidiary and an Indian 100 percent subsidiary together contributed close to 10 percent of turnover in the quarter. Over time, management expects standalone Shree Cement to account for only about 75 to 80 percent of total revenue, with the rest coming from the UAE and other subsidiaries.

Why Q1 FY27 looked different

The supply disruptions hit Shree Cement in two ways. First, fuel cost rose because the company could not use its contracted pet coke. Management said pet coke usage dropped sharply from 54 percent to 9 percent, while coal rose from 32 percent to 81 percent. It stated fuel cost for the quarter was about INR 1.95 per kcal.

Second, the switch to lower-quality, higher-ash coal had a cascading effect on cement blending. Management explained that higher ash content increases ash absorption into clinker, which constrains the ability to add pozzolanic and other cementitious materials. That reduced the conversion factor and pushed production towards higher clinker content cement.

This matters commercially because higher OPC output tends to be sold more in non-trade channels, while Shree Cement has historically positioned itself as a leader in trade sales and premiumisation.

Operating metrics: trade mix and conversion factor pressure

The quarter saw a clear deterioration in the mix metrics that Shree Cement typically optimises.

• Clinker conversion (management’s stated figure) was 1.50 in Q1 FY27 versus 1.58 in the same quarter last year.
• Trade sales mix was 62 percent versus 71 percent in Q1 FY26.
• Blended cement ratio was 60 percent versus 70 percent in Q1 FY26.

Management said this was not reflective of the company’s long-term intent. It reiterated that the company wants to return to about 70 percent trade and 30 percent non-trade mix.

On realizations, management shared an India operations realization of INR 4,919 per ton, compared with INR 4,854 per ton in the year-ago quarter.

Financial and operating summary (as disclosed on the call)

Consolidated lens: UAE and the East become more important

Management repeatedly emphasised that consolidated numbers are the right way to track the company going forward. It said consolidated volume for the quarter was 114.5, while March 2026 consolidated volume was 119.4. The sequential dip was attributed mainly to the UAE business, which saw practically no sales in April and May due to the war.

At the same time, management highlighted that the UAE capacity is being doubled and should be upstream by Q3 FY26-27. It also said the UAE operation is expected to “touch 7 million tons” by Q3 FY26-27.

While the call included multiple analyst requests for UAE revenue and EBITDA disclosure, management declined to provide subsidiary-level profitability or revenue. Instead, it asked analysts to use consolidated cement volumes and consolidated EBITDA as the primary benchmarking set.

Regional utilisation and growth in India

The company shared regional utilisation and volume growth commentary for India operations:

• Capacity utilisation: North 66 percent, East 60 percent, South 57 percent, overall 62 percent.
• Growth: South volumes rose from 11 lakh tons to 16.9 lakh tons, aided by new capacity and better penetration into West India markets like Maharashtra and Gujarat. North grew about 20 percent. East was flat year-on-year.

Management said East is typically a trade-heavy market, and that constrained conversion factor limited the ability to push blended cement and trade volumes in the region during the quarter.

Cost outlook: “almost peaked” in Q1

The most direct guidance in the call related to costs. Management said the cost embedded in cement produced has “almost peaked” in Q1, even though it had earlier expected cost to peak in Q2.

Key reasons cited:

• Contracted pet coke shipments have started arriving.
• PVC prices have started coming down, and packing costs have already begun to reduce.
• Gypsum costs are expected to ease as supply normalises.

Management cautioned that the cost outlook depends heavily on Middle East stability. It suggested fuel cost may not rise materially, potentially increasing only by about INR 0.02 to INR 0.03 per kcal from the current level, unless there is another disruption.

Capex, depreciation, tax, and cash

For FY26-27, management maintained India capex guidance of about INR 1,500 crore, with about INR 456 crore (also referenced as about INR 450+ crore) spent in Q1. It clarified that this capex guidance was for India operations and does not include the UAE expansion, which is being funded from UAE operations.

Management also provided:

• Depreciation guidance: about INR 2,400 to INR 2,500 crore.
• Tax rate: about 30 percent.

On liquidity, the call included a disclosure described as “net cash consolidated” with figures stated as INR 7,733 for June 25 and INR 3,448 in June 26, as spoken in the transcript.

RMC scaling: revenue rising, profitability still neutral

Ready-mix concrete is being expanded but is not yet a meaningful profit driver. Management said:

• RMC plants: 26 operational now versus 19 at the beginning of the year.
• Additions: eight plants added in Q1; another 10 intended in the next quarter.
• RMC revenue: INR 109 crore in Q1 FY27, INR 90 crore in March 2026, INR 40 crore in June 2025.

However, management characterised RMC as “almost a profit-neutral game” currently, with a longer-term expectation that operating efficiency could lift EBITDA margin to about 5 percent.

Operational initiatives: renewables, EVs, and BESS pilots

Beyond near-term cost normalisation, management highlighted ongoing operating levers:

• Renewable energy share increased from 61 percent to 66 percent in Q1.
• Electric commercial vehicles: management said it intends to commission about 100 e-commercial vehicles in the year, citing potential operating cost advantages versus diesel.
• Battery Energy Storage Systems: management said it has implemented a small system and will scale if it works, noting that energy losses mean 100 units stored may yield only about 85 units usable.
• Additional cementitious materials: management indicated work is ongoing to identify alternatives that could improve conversion factor, but did not provide details.

What to watch from Q2 onwards

Management’s closing remarks were consistent. Q1 should be treated as abnormal, and the company expects improvement from Q2 onwards, assuming the geopolitical disruption does not worsen.

The key swing factors appear to be:

1. Restoration of pet coke availability and improved fuel mix.
2. Lower gypsum procurement cost and better quality input.
3. Recovery in conversion factor, blended cement ratio, and trade share.
4. Seasonal volume effects in Q2, which management acknowledged, even while expressing confidence in better profitability.

The company maintained FY26-27 volume guidance of 40 million tons, even though management noted it could be possible to exceed this based on the first-half trajectory. It also reiterated that it is not pursuing inorganic acquisitions and prefers organic expansion.

If Q2 delivers normalised blending and trade mix, the quarter will likely be the first real test of whether Q1 was a one-off shock or the start of a more persistent cost and mix volatility period.