Prabhudas Lilladher recommended Hold rating on Shree Cement with a target price of Rs 17500 in its research report dated November 05, 2018.
Prabhudas Lilladher's research report on Shree Cement
Shree cement (SRCM) reported Q2FY19 earnings in line with our estimates. Adjusted for forex loss of Rs850mn and rebate of Rs304mn recognized on freight, EBITDA of cement business fell 3.6% YoY to Rs5.3bn (PLe:Rs5.4bn). Led by low base and strong growth in Eastern region, volumes grew 16% YoY to 5.6mn (PLe:5.6mn) tonnes. Despite steep increase in energy cost and pressure on prices, SRCM posted highest EBITDA/t in the sector at Rs950 (PLe:Rs970), down 17% YoY. Led by strong organic growth (15% CAGR in capacity over FY18-FY21e) and efficient operations, we expect SRCM's earnings to grow at CAGR of 15% in FY18-FY21e. We expect cement prices to remain under pressure over next couple of years due to accelerating share of low price institutional segment, surge in capacity addition and intense competition.
Outlook
However, the impact of weaker prices would be offset by strong volume growth and control on energy cost. We maintain ACCUMULATE with TP of Rs17,500.
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