Buy Shree Cement Ltd : Stable performance; outlook remains healthy - ICICI Direct
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Buy Shree Cement Ltd For Target Rs.31,200
Stable performance; outlook remains healthy…
About the stock: Shree Cement is the third largest cement group in India with domestic cement capacity of 43.4 MT as of FY21. In the past four years, it has diversified itself from a 100% north player to one with capacities now in Rajasthan, Uttarakhand, Bihar, Chhattisgarh, Haryana, Uttar Pradesh, Karnataka and Odisha.
* It also has a presence in UAE with integrated cement capacity of 4 MT and 3.3 MT clinker (located near port in Ras-Al-Khaimah)
* Proximity to end user market, use of split gas and power generation capacity of 742 MW (including 211 MW WHRS) makes it most efficient player in the industry
Q1FY22 Results: Reported stable operating performance during Q1FY22 while PAT remained higher than estimates due to lower depreciation and higher other income.
* Clocked revenue of | 3449.5 crore, down 12.8% QoQ led by sales volumes de-growth of 16.8% to 6.84 MT. On a YoY basis, revenues were up 47.8%
* EBITDA/t was up 3% QoQ to | 1,482/t (vs. last quarter EBITDA/t of | 1,439/t). EBITDA margin was at 29.4%, broadly flat QoQ, down 65 bps YoY
* PAT was down 13.8% QoQ to | 661.7 crore. However, it was higher than our estimated PAT of | 560.8 crore
What should investors do?
Cost leadership, strong presence in North & East along with robust balance sheet justifies premium valuations.
* With volume led expected revenue CAGR of 16.5% and expected RoCE of 19%+, we remain positive on company. Hence, we maintain BUY rating
Target Price and Valuation: We value Shree at | 31,200 i.e.20x FY23E EV/EBITDA
Key triggers for future price performance:
* Commissioning of grinding unit of 3 MT in Maharashtra (likely by September 2021) to reach its capacity of over 50 MT from current 47.4 MT
* The new clinker unit in Chhattisgarh (capacity of 12000t/day) to get commissioned by H1FY23E with investment of only | 1000 crore that will be funded via internal accruals
* The company will continue to maintain its cost leadership due to structural advantage it has in terms of accessing raw materials and markets.
Alternate Stock Idea: Besides Shree Cement, in our cement sector coverage we also like UltraTech Cement.
* It is a market leader with strong brand in the retail segment
* BUY with a target price of | 8,700/share
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