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We recently interacted with the management of Shree Cement (SRCM) for an update on their business strategy and general industry outlook. Following are the key takeaways: (1) SRCM has formed a Technical Services team (also comprising civil engineers) which will not only provide expertise to construction activities but also improve sales by close interaction with customers, (2) it aims to increase premium cement (higher by Rs25/bag vs normal cement bag) share to 15% from 7% currently, (3) increase thermal substitution rate to 15% by FY24 from ~3% in FY22, (4) on track to achieve ~56/80mtpa by FY25/FY30 from ~46mtpa currently. On industry, the management commented that current demand is robust in their operating markets; however, due to heightened competitive measures, cement players are unable to increase prices. Meanwhile, management expects prices to improve Q1FY24 onwards. Taking cognisance of the above, we broadly maintain our EBITDA estimates and value SRCM at Rs29,130/sh (earlier: Rs27,550) based on 16x Mar’25E EV/E on a quarterly rollover. We estimate volume CAGR of ~13% over FY22-FY25E backed by strong capacity additions and demand gaining strength in the run-up to general elections in the country. Maintain BUY. Key risks: Lower prices and higher fuel costs

* Aims to double premium cement share to 15% over 12-15 months: SRCM has formed a technical services team (also comprising civil engineers) which will not only provide expertise to construction activities but also improve sales by close interaction with customers. This shall pave way for SRCM to bridge the gap between competitive premium brands and increase realisation.

* Cost-saving initiatives: In order to maintain and strengthen its cost leadership, Shree Cement plans to increase its thermal substation rate (TSR) by increased usage of alternate fuels (industrial and agricultural waste). The fuel consumption cost for alternate fuels is around Rs1.3-1.5/kcal. Shree’s current fuel consumption cost is ~Rs2.3/kcal at current TSR of 4.5% with the aim to increase to 15% in next 12 months. Further, SRCM plans to set up railway sidings (rail share is 10% currently; east operations at 100% road mix) at all plant locations in the next two years.

* Volume visibility remains high; expansions on track: Company plans to commission 3mtpa clinker grinding unit in Purulia, West Bengal, in Q1FY24. It is also setting up an integrated cement plant in Rajasthan with clinker capacity of 3.8mtpa and cement capacity of 3.5mtpa, which is expected to commission in Q4FY24. Besides, it plans to add greenfield 1.5mtpa clinker and 3mtpa cement capacities in Andhra Pradesh by FY25. As per the management, the company shall incur capex of ~Rs30bn/Rs35bn in FY23/FY24 through internal accruals and achieve ~56mtpa capacity by FY25. SRCM aims to be an 80mtpa cement player by FY30.

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