Expect 50% upside in India Cement, says Rajen Shah

Expect 50% upside in India Cement, says Rajen Shah of Angel Broking.

Shah told CNBC-TV18, "Last quarter was one of the most challenging for corporate especially infrastructure and construction and despite that cement companies have reported remarkably good numbers. Be it ACC, Ambuja Cement, UltraTech Cement all came out with decent set of numbers. So in this situation if these companies have been able to do so well, probably in the next three-four quarters when the economy starts gaining momentum, cement should do much better."

He further added, 'We at Angel Broking have been bullish on this industry for quite a while. We like India Cement but unfortunately the stock has underperformed. Last year we had recommended the stock at about Rs 71 but the stock has hardly given about 20% kind of appreciation."

"We continue to like India Cement vis-à-vis ACC, Ambuja, UltraTech for that matter because as far as valuations are concerned it’s almost trading at a 50% discount on an enterprise value basis, just to explain, ACC is 30 million tonne cement company, trading at an enterprise value of almost about Rs 24,000 crore. So when you are buying ACC you are buying 1 million tonne for Rs 800 crore. If you see Ambuja then 30 million tonne for about Rs 28,000-29,000 crore, so you are getting 1 million tonne in Ambuja for about 900 crore and UltraTech with 52 million tonne at enterprise value of about 45,000 crore, you are getting it for about Rs 850-875 crore per million tonne."
 
"But you are getting India Cement with 16 million tonne for an enterprise value of about Rs 5,000 crore. So you are getting it for about Rs 310-315 crore per million tonne. So it’s very cheap vis-à-vis these players. If you compare it with a southern company, the second largest player in south India, Madras Cement. Madras Cement is a 11 million tonne company trading at an EV of about Rs 5,500 crore and this is a 16 million tone cement company trading at 5,000 crore. So India Cement looks ripe for a decent upmove. We are expecting about 40% upside in the stock in the next 12 months. We have a target of Rs 120 in the next 12 months."

Disclosure: We do not hold this stock in our PMS.