Buy Shree Cements; target of Rs 2636: Motilal Oswal

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Buy Shree Cements; target of Rs 2636: Motilal Oswal

Motilal Oswal is bullish on Shree Cements and has recommended buy rating on the stock with a target of Rs 2636 in its January 25, 2012 research report.

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Motilal Oswal is bullish on Shree Cements and has recommended buy rating on the stock with a target of Rs 2636 in its January 25, 2012 research report.

"Shree Cement's (SRCM) operating performance for 3QFY12 was better than expected. EBITDA was INR3.32b (v/s our estimate of INR3.22b), driven by strong cement business performance. However, higher depreciation restricted adjusted PAT to INR592m (v/s our estimate of INR983m). SRCM's 3QFY12 revenue grew 61% YoY (+47% QoQ) to INR12.6b (v/s our estimate of INR12.8b) and recurring PAT was INR592m (v/s our estimate of INR983m). EBITDA grew 111% YoY (~66% QoQ) to INR3.32b (v/s our estimate of INR3.22b), translating into EBITDA margin of 26.4% (v/s our estimate of 25.1%) - an improvement of 620bp YoY (+290bp QoQ). Higher depreciation was on account of commissioning of 150MW merchant power plant. Cement volumes grew 9% YoY (+15% QoQ) to 2.85m tons (v/s our estimate of 3m tons). Blended realization was higher by INR385/ton QoQ (+INR950/ton YoY) at INR3,797/ton (v/s our estimate of INR3,582/ton), driven by lower clinker sales and expansion into further markets."

"Cement EBITDA/ton at INR1,117 (v/s our estimate of INR935/ton) was higher by INR310/ton QoQ (+INR560/ton YoY). Merchant power volumes in 3QFY12 were ~392m units (including traded power) as against ~14m units in 2QFY12 (74m units in 3QFY11) and revenue was INR1.8b (v/s INR69m in 2QFY12 and INR335m in 3QFY11). EBITDA of merchant power business was ~INR144m (v/s our estimate of INR412m)."

"We have upgraded our earnings estimates by 3% for FY12 to INR204.7 and by 5% for FY13 to INR217.7, driven by better cement realization and profitability. The stock trades at 10.2x FY13E EPS, and at an EV of 4.9x EBITDA and USD98/ton (adjusting for merchant power assets of ~400MW). Maintain Buy," says Motilal Oswal research report. 

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To read the full report click on the attachment