Motilal Oswal expects capacity-led rerating for Shree Cement

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26 Aug, 2025 12:21

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Motilal Oswal sees a possible rerating to Shree Cement’s stock based on the company’s plans to expand capacity over the next 2-3 years. The brokerage foresees the company to add capacity of around 44 percent over FY2017-19 to 39 million tonnes from 27 million tonnes. For the same, capex spend of Rs 4000 crore over FY16-19 is estimated at USD 50 per tonne. “The market is likely to value this additional capacity at USD 150 per tonne— 3 times the capex incurred. Over FY13-16, when it doubled its capacity, Shree Cement saw a rerating from an EV per tonne of USD 100 to USD 200. We expect a capacity-led rerating this time as well, though the rerating might not be as sharp,” the report from Motilal Oswal added. “Based on FY17 capacity of 27 million tonnes, the company trades at an EV(enterprise value) per tonne of USD 253, which translates into 80 percent premium to average large cap players,” the brokerage said. However, on the adjusted capacity of 39 million tonnes in FY19, the companytrades at an enterprise value per tonne of USD 161. This implies a 27 percent premium to average of large cap players against the current 80 percent premium, the report added. Even if it is trading at a higher valuation than its peers, Shree Cement deserves to trade at a premium due to high profitability, superior return ratios and efficient execution capabilities, Motilal Oswal said in a report. The brokerage has maintained a buy stance on the stock. “We believe Shree Cement deserves to trade at premium valuations and value the stock at 14 times FY19 EV/EBITDA to arrive at a target price of Rs 17096 per share."