Motilal Oswal is bullish on Shree Cement has recommended buy rating on the stock with a target price of Rs 18867 in its research report dated March 28, 2018.
Motilal Oswal's research report on Shree Cement
SRCM is increasing its domestic capacity by 32% over FY17-19, supported by capacity addition in the east, north and south markets at an estimated capital cost of USD60/t (significantly lower than market ascribed EV/tonne of USD 170-200/t). Additionally, the company has acquired an integrated asset in the UAE at USD76/t, helping it maintain lower cost of capacity addition – in line with the company’s long-term strategy.
Outlook
SRCM is likely to deliver EBITDA CAGR of 29% over FY18-20, led by healthy volume growth (driven by rapid capacity addition) and pricing improvement (driven by higher realizations in the underlying markets in the north). In our view, SRCM – with its superior return ratios and strong earnings growth – deserves to trade at premium valuations. We, thus, value the stock at 15.5x FY20E EV/EBITDA to arrive at a target price of INR 18,867. Maintain Buy.
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