Buy Shree Cements; tgt of Rs 2608: Networth Stock Broking

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Buy Shree Cements; tgt of Rs 2608: Networth Stock Broking

Networth Stock Broking is bullish on Shree Cements and has recommended buy rating on the stock with a target of Rs 2608 in its January 24, 2012 research report.

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Networth Stock Broking is bullish on Shree Cements and has recommended buy rating on the stock with a target of Rs 2608 in its January 24, 2012 research report.

"Shree Cement Ltd (SCL) registered revenue growth of 61% yoy. Cement revenue grew 45% yoy, which was led by 9% yoy (14% QoQ) increase in cement (incl. clinker) volumes and 33% yoy (11% QoQ) increase in blended realizations. Power segment also boosted the topline by reporting growth of 429% yoy on account of merchant sales and power traded. Merchant power sales during the quarter were 256mn units at Rs 4.35 vs 74mn units at Rs 4.5 in Q3FY11."

"Operating cost/t surged by 26% yoy (11% QoQ) to Rs 2889 as both fixed and variable costs continue to rise. Despite 26% yoy rise in cost/t, the Company was able to outpace the EBITDA growth by 63% yoy (Rs 905/t) thanks to better realizations in SCL's core Rajasthan and NCR markets. Recently, Coal India's move to price its coal on gross calorific value methods, which would raise the local cement players' fuel cost by 30%, but SCL is insulated to any such hike in fuel cost as it has no coal linkage with Coal India, nor it depends on local coal to meet its fuel requirement. In this scenario, we believe, the cost push pricing that the industry would undertake in near term would positively impact profitability. We have increased our cement volume estimates further by 2% and realizations by 5% for FY12E. We have also lowered power & fuel cost as pet coke prices have fallen by 10-20% during the quarter. Rupee appreciation remains upside risk to our estimations."

"On EV/tonne basis, cement business is available at 10% discount to the replacement cost of $110/t. On EV/EBITDA basis, SCL is trading at 6.7x and 4.7x its FY12E and FY13E EBITDA respectively. With the improved core earnings outlook, we have revised our target price to Rs 2608 (from Rs 2250 earlier) implying 18% upside from the CMP. We continue to value cement business at 6 x FY13E EBITDA, 25% discount to its peers and power business at 4x FY13 EBITDA, 40% discount to larger players like Tata Power and Adani Power ," says Networth Stock Broking research report.   

Public holding more than 90% in Indian cos

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To read the full report click on the attachment