Leading brokerage firm Axis Securities has upgraded its rating on Shree Cement Limited stock from HOLD to BUY for a potential upside of 12% with a target price of Rs 25,900 per share. Shree Cement is a leading large cap Cement cement sector company engaged in the manufacturing and selling of cement and cement related products and is one of the lowest cost producers in the country. It is the 3rd largest cement producer in India with an installed capacity of 43.4 MTPA. It has a market capitalisation of Rs 83,938.07 crore.
Below are the key takeaways from Shree Cement Limited Management meet:
CMP, 52-Week Low/High, & Returns
On NSE, the current market price (CMP) of Shree Cement stock is Rs 23,310 per share, trading 0.39% up as compared to its previous close of Rs 23,218.35 per share. Its recorded 52-week high level as on 17 January 2022 is Rs 27,936.75, and its 52-week low level recorded on 20 June 2022 is Rs 17,865.20, respectively.
The stock in 1 month moved up by 6.93% and in 3 months it moved up by 5.51%, respectively. However, in the past 1 year, it moved down by 10.77%. The stock gave 10.92% positive returns in 3 years and in the past 5 years, it gave 35.43% positive returns, respectively.
Setting up of an Integrated Cement Plant at Gothra, Nawalgarh (Rajasthan) having a clinker capacity of 3.8 mtpa and cement capacity of 3.5 mtpa. Capex of Rs~3,500 Cr is earmarked for this project and the financing will be done through internal accruals and debt. The plant is likely to get operational by Q4FY24.
Setting up a Clinker Grinding Unit of 3 mtpa Village Digha & Parbatpurin, Purulia(West Bengal) through the company's wholly-owned subsidiary SCEPL.Capex planned for this plant is ~Rs 750 Cr and the financing will be done through equity contribution from SCL. The unit is expected to get operational in Q1FY24.
Setting up of Integrated Cement Plant at Guntur (AP): The Company is setting up an Integrated Cement Plant in the Guntur District of Andhra Pradesh, which would have a clinker capacity of 1.5 mtpa and cement capacity of 3.0 mtpa. The total Capex to be incurred is Rs 2,500 Cr and that will be funded through internal accrual and debt. Unit is expected to operationalize by Q3FY25. With this total cement grinding capacity of the company would get extend to 55.9 mtpa from current 46.4 mtpa on standalone basis .
Cost pressure to moderate:
The company indicated that cost headwinds to moderate moving ahead as coal and Pet coke prices have softened and positive impact of the same will be reflected in Q4FY23. Margins in Q3FY23 will see a slight improvement over Q2FY23. We expect the EBITDA margins to improve to 23% -24% in FY24E-25E on the back of higher realization, lower cost and better demand.
Higher Cement Demand to outpace supply
The Cement demand is expected to be robust, growing at 8% CAGR over FY22-FY25E moving ahead and new capacity addition by various large players in the East region will easily get absorbed as per management. The management indicated that higher Cement demand will outpace supply which is expected to grow at 6%. With higher government focus on various infrastructure and housing projects in the East region, demand is expected to remain resilient.
Focus on Premium Cement
The company is focusing to increase the sale of premium Cement which currently forms 8% of overall trade sales. This will enable the company to report higher realization going forward.The trade sale is expected to remain at 80% .
The capex in FY23E/FY24E is expected at Rs 2,500 -Rs3,000 cr each and Rs 1000 Cr in FY25E based on the current expansion program. The company has net cash and cash equivalent of Rs 6,000 Cr as on date.
Outlook & Valuation
According to the brokerage, H1FY23 was impacted owing to elevated cost; H2FY23 will see the positive impact of lower commodity prices along with higher demand and realization. Cement demand is expected to be robust in FY23E and FY24E on account of higher government spending on housing and infrastructure as well as due to the upcoming general election in 2024.The company's new capacity expansion plan is on track while it is strongly positioned in its key markets of North and East India and these regions are expected to exhibit encouraging growth, supported by higher cement demand in the region.
The brokerage said, "We expect the company to deliver Volume/Revenue/EBITDA/APAT growth of 9%/12%/10/%/5% CAGR over FY22-FY25E. Currently, the stock is trading at 18x and 16x FY24E and FY25E EV/EBITDA. We roll over our estimate to FY25E and value the company at 17.5x FY25E EV/EBITDA to arrive at the TP of Rs. 25900/share, implying an upside potential of 11% from the current levels and hence change our rating from HOLD to BUY."
The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.