Motilal Oswal's research report on Shree Cement
Shree Cement (SRCM) is one of the most cost-efficient producers in the industry, owing to its various cost reduction measures such as higher use of green energy, in-house innovation to improve plant efficiency, and a freight cost policy that involves auction for better rates. However, while other players have also caught up on cost-reduction measures, the cost/t gap between SRCM and its peers has declined to INR572/t in FY22 (INR529/t in 9MFY23) from INR838/t in FY18. We believe the company’s cost curve currently positions the company above its peers, leaving little room for significant cost reduction. SRCM is expanding its clinker/cement capacity by 5.3mtpa/9.5mtpa spread over North, East, and South regions. SRCM is estimated to deploy ~90% of OCF for Capex in FY23-25 as compared to the past three/five-year average at ~40%/~60%, which will result in lower FCF yield.
Outlook
The stock trades at 19.7x/16.9x FY24E/FY25E EV/EBITDA (v/s its 10-year average one-year forward EV/EBITDA of 19.4x), limiting any material upside potential. We reiterate our Neutral rating and value SRCM at 16x FY25E EV/EBITDA (earlier 16x Sep’24) to arrive at our TP of INR23,710 (earlier 22,960) .
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