Shree Cements rallies 4%: What should investors do with stock after Q3 earnings?

Shree Cements shares rallied 4 percent in morning on January 23 as brokerages remained positive on the stock after a strong operational show in December quarter.

The stock was quoting at Rs 16,495.40, up Rs 583.60, or 3.67 percent on the BSE at 1000 hours IST.

Most brokerage houses have maintained their positive stance on the stock and expect the stock to return 7-16 percent after December quarter earnings.

Company's profit for December quarter dropped 10 percent year-on-year to Rs 301.3 crore dented by lower other income and higher taxes, but revenue from operations increased sharply by 21 percent to Rs 2,781 crore YoY.

At the operating level, the EBITDA (earnings before interest, taxes, depreciation and amortization) grew 25 percent to Rs 710 crore and margin expanded 90 bps to 25.6 percent compared to corresponding period last year, which was far better than a CNBC-TV18 poll estimates of 22.4 percent for the quarter.

Among segments, its cement business showed a 16 percent on year increase at Rs 2,559 crore, while power segment rose 44 percent to Rs 502.6 crore YoY.

Cement sales volumes increased to 5.93 million ton in the quarter ended December 2018 against 5.3 million ton in year-ago.

Here are brokerage views on the stock:

Deutsche Bank: Buy | Target: Rs 18,500 | Return: 16 percent

It was a turnaround quarter for the company and the stock remained its top pick in the sector.

The research house expects March quarter EBITDA margin to be even stronger from December and sees 12.5 percent CAGR in volumes, 22 percent CAGR in EBITDA and 40 percent CAGR in EPS in FY19-21.

Deutsche also sees power, fuel and freight costs decline 2-5 percent QoQ in the current quarter. It has a buy call on the stock with a target price at Rs 18,500.

Citi: Buy | Target: Rs 18,250 | Return: 15 percent

Citi tweaked its FY19-21 EBITDA estimates marginally and expects power/fuel cost to lower during Q4 with correction in petcoke prices.

It has a buy call on the stock and raised price target to Rs 18,250 from Rs 17,850 per share.

CLSA: Outperform | Target: Rs 18,275 | Return: 15 percent

EBITDA beat was led by cement realisations, power units and margins, said CLSA that factored in a better Q3 and raised EBITDA estimates by 2-3 percent.

Nomura: Buy | Target: Rs 18,000 | Return: 13 percent

Japanese brokerage firm Nomura said Q3 was overall a satisfactory result with good cement volume growth at 11 percent YoY.

With declines in oil prices, it expects operating costs to decline from Q4 and continues to believe the cement upcycle has begun.

The research house remained positive on the sector, saying weak cement demand and lower cement prices are key downside risks.

Axis Capital: Hold | Target: Rs 17,028 | Return: 7 percent

Better realisation was partly aided by higher subsidy recognition and higher sales in the east, said Axis Capital that maintained its FY19/20/21 EPS estimate at Rs 432/Rs 553/Rs 760.