Prabhudas Lilladher recommended hold rating on Shree Cement with a target price of Rs 16900 in its research report dated May 11, 2020.
Prabhudas Lilladher's research report on Shree Cement
SRCM reported Q4FY20 earnings in line with our estimates. Company depicted strong maturity over last one year with tight discipline on volumes and prices in its Northern operations. This is reflected in highest ever margins since FY09 and best ever absolute bottom line. However, we see material downside risk to SRCM's margins due to competition from new capacities, weak demand outlook and increased likelihood of leakage on volumes coupled with widening gap between A and C category brands. Company raised Rs24bn in Q3FY20 through QIP of equity to fund capacity expansion despite quality B/S and strong cash flow generation. Overcapacity and weak demand would delay SRCM's capacity creation and hence, the RoE profile due to idle cash loaded in the B/S.
Outlook
Peaked out margins, slowing growth and stretched valuations (EV/EBITDA of 16.7x and P/E of 33x FY22E) leaves no scope for margin of safety. Hence, we maintain Hold with TP of Rs16,900 (earlier Rs16,680).
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