Edelweiss is bullish on Shree Cement has recommended buy rating on the stock with a target price of Rs 21745 in its research report dated April 30, 2018.
Edelweiss' research report on Shree Cements
Shree Cement’s (SRCM) Q4FY18 EBITDA, at INR6.3bn, grew 12% YoY (6% ahead of estimates) despite it being the most challenging quarter in FY18 given: 1) lowest volume growth (up 6% YoY versus 11% for 9mFY18); 2) highest cost/t (up 8% YoY at INR3,201 versus INR3,021 for 9mFY18); and 3) muted realisations (up just 2% QoQ despite the busy season). While current weakness in cement prices and no respite from rising fuel prices leads us to prune FY19/20E EBITDA by 9%/5%, we maintain our positive stance on the stock given: 1) 15% volume CAGR potential over FY19-20E (owing to capex completion) and SRCM’s resolve to continue volume march at 1.5x industry growth; 2) >60% capacity exposure to Northern region which will see clinker utilisations rising from 83% in FY18E to >90% in FY20E, making SRCM emerge a major beneficiary; and 3) best-in-class RoE of ~17% in FY18.
Outlook
With a positive view on cement sector, we continue to value SRCM at 17x FY20E EV/EBITDA and maintain ‘BUY’ with revised TP of INR21,745 (INR22,854 earlier).
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