Broking house, ASK Raymond James & Associates has recommended buy rating on the Shree Cements .
ASK Raymond James & Associates report on Shree Cements
Shree Cement: Advantage of being low cost producer
"Shree Cements (SCL), a North-based cement producer sells 88% of its volumes in North and has 11% market share. Currently SCL has 4.5 million tonnes of capacity and has planned to expand further by 5 million tonnes taking its total capacity to 9.2 million tonnes by FY08E. We are initiating coverage on the stock with a Buy rating considering that the outlook for cement sector continues to be buoyant with a strong demand growth and limited capacity addition till early FY09E. SCL is likely to benefit from strong volume growth due to timely commissioning of its 1.5 million tonnes of plant and high operating margins. While it is no longer cheap, its strong presence in the North gives SCL the best leverage to benefit from the robust price outlook in the region."
"The stock currently trades at an EV/EBITDA of 6.0x and PE of 10.0x for FY08E. While it is no longer available cheap, strong demand and capacity addition of 31% over two years gives SCL significant room for earnings growth of 226% CAGR in FY06-08E. Our target price of Rs 1,600 is based on an EV/EBITDA of 7.3x (a premium over its last 3-year average EV/EBITDA of 5.1x) and would value the stock at EV/tonne of USD140 for FY08E. We initiate coverage on SCL with a Buy rating."
