Neutral Shree Cement; target of Rs 25,500: Motilal Oswal

Motilal Oswal's research report on Shree Cement

Shree Cement (SRCM) reported 2QFY24 EBITDA of INR8.7b vs. our estimate of INR8.5b. Blended EBITDA/t stood at INR1,062 vs. estimate of INR1,028. OPM surged 5pp YoY to 19% (in line). However, adjusted PAT stood at INR4.9b, above estimate of INR4.3b, led by lower-than-estimated tax rate.  The Greenfield expansion at Nawalgarh (Rajasthan), having clinker/grinding capacity of 3.8mtpa/3.5mtpa, is delayed by three months and is expected to be commissioned in 4QFY24. However, other projects are expected to be completed as per schedule. SRCM targets to increase domestic grinding capacity to 80mtpa in the next three years (from 49.9mtpa currently). We maintain our FY24/FY25 EBITDA estimates; however, raised EPS estimate for FY24 by ~13%, due to lower depreciation estimate (amid delayed project) and lower tax expense.

Outlook

We continue to believe that SRCM’s cost benefits over peers are narrowing. We value it at 16x Sep’25E (earlier FY25E) EV/EBITDA to arrive at a revised TP of INR25,500 (earlier INR24,300) and maintain our Neutral rating on the stock.