Hold Shree Cement; target of Rs 25,000: Emkay Global Financial

Emkay Global Financial's research report on Shree Cement

Shree Cement’s (Shree) key focus over the next few years is likely to be on: 1) lowering pricing gap with peers through branding, marketing initiatives, and increasing share of premium products; 2) cost-optimization initiatives to maintain its cost-leadership position; 3) higher-than-industry volume growth to gain market share and better operating leverage. Management intends to focus on building brands to narrow down the pricing gap (Rs20- 25/bag) with peers by creating separate teams for sales and marketing functions, formation of technical services team, digitization initiatives including mobile app, increasing share of premium products to 15% of trade sales (vs. 7-8% currently) in the next 3-4 quarters, and higher A&P spends. Shree is also likely to maintain its cost-leadership position with an increasing share of rail mix and lowering lead distance, rising share of green power, higher usage of AFR, and better operating leverage. We estimate a sustainable cost-savings potential of Rs60-80/ton over the next few years. Management targets volume growth at 1.2-1.3x the industry’s over the next few years (6- 8% CAGR for the industry), led by capacity additions. Management has reiterated its capacity guidance of 80mt by FY30 (8% CAGR) and thus become a pan-India player.

Outlook

We maintain our positive stance on the company; however, given only a modest upside on the TP, we maintain our HOLD rating with TP of Rs25,000, based on 15x FY25E EV/E.