1000% Dividends, 22% Gains In 2023: Cement Stock Plans To Reward 1st Interim Dividend Of 2024; BUY?

After giving double-digit returns and paying a hefty 1000% dividend in 2023, large-cap stock Shree Cement will be in focus in January month as the company will announce its Q3FY24 earnings and consider its first interim dividend of 2024. Brokerage Antique Stock Broking is optimistic about the stock as the cement giant is getting back on industry-leading growth and profitability.

As per the regulatory filing, Shree Cement's board of directors will be meeting on Wednesday, January 31, 2024, for the consideration of standalone and consolidated financial results for the quarter and nine months ending on December 31, 2023.

Among the key other developments, Shree Cement said "We would like to inform you that declaration of Interim Dividend for the Financial year 2023-24, if any, shall be considered by the Board of Directors of the Company in the above meeting."

The record date has been fixed on February 8th to determine eligible shareholders of the upcoming dividend.

In 2023, Shree Cement paid dividends to the tune of 1,000% amounting to Rs 100 per share to its shareholders. Also, its yearly gains are nearly 22%. Currently, the stock is at Rs 28,588.45 apiece.

Should you buy Shree Cement shares?

In its research note, Antique's analysts said, "We recently met Shree Cement (SRCM) management and key takeaways include (a) increased focus on improving brand positioning and minimizing price differential with larger peers (channel checks suggest mega marketing event planned in the next week for the same); (b) company targeting historical >1.5x industry growth rates supported by aggressive ~15% CAGR in capacity additions to ~72 mtpa by FY26E; (c) costs unlikely to be a major headwind going ahead given current lower fuel costs vs past eight quarters; and (d) the company would continue to remain a low-cost producer aided by increasing share of green energy, AFR and higher share of rail coefficient in freight mix."

Further, Antique's channel check suggests SRCM may host a mega marketing event in the first week of Jan'24 including roping in celebrity brand ambassadors wherein it plans to consolidate its various existing brands and educate/ incentivise a huge number of large distributors across India for improving brand perception of SRCM. While it is a tall and gradual task, even if a price gap of ~Rs 5/ bag is bridged, it can lead to incremental EBITDA of Rs 70/ ton (~5% of FY26E).

Also, Shree Cement plans s to increase its capacity from 46 mt in FY23 to 72 mt by FY26E translating into a capacity CAGR of 15% (highest among larger peers). The company is targeting historical >1.5x industry growth rates in the medium-term translating into >10% volume CAGR.

Additionally, Shree Cement believes that cost is unlikely to be a major headwind going ahead given current lower fuel costs vs the past eight quarters. The company would continue to remain remain low-cost producer. SRCM plans to increase the share of green energy to 63% by the end of FY25 (51% in FY23 and 58% in 2QFY24), increasing the share of alternative fuels and setting up railway sidings at all plants leading to lower freight costs (benefit of ~INR 50/ton). Besides, a higher share of premium product sales and minimizing the realisation gap vs peers would add to better profitability, it said.

For Q3, Antique's note said, 'SRCM 3Q volumes may grow in high single digits vs mid-single digits for the industry; while its EBITDA/ ton may inch close to INR 1,300 assuming benefits of: a) Rs 150/ ton via realization (building in ~3% QoQ price increase); b) Rs 50/ ton via operating leverage, and c) Rs 50/ ton through decline in input costs."

On the investment, the brokerage's research report added, "We factor 11% volume CAGR over FY25-26E and expect standalone blended EBITDA/ ton to improve from INR 947/ ton in FY23E to INR 1,353/ ton by FY25E led by lower fuel costs, better costs efficiencies, and higher realization. The stock currently trades at ~16.5x EV/ EBITDA and ~USD 140 EV/ ton based on 1HFY26 EBITDA estimate. Key risks: lower demand/ price and higher cost escalations."

The brokerage has set a target price of Rs 31,200 on Shree Cement, which suggests over 9% potential upside in the stock price ahead.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.