Neutral Shree Cement; target of Rs 27,700: Motilal Oswal

Motilal Oswal's research report on Shree Cement

Shree Cement (SRCM) has been consistent in capacity expansion (mostly through organic routes), with a capacity CAGR of ~12% over FY14-24. The company plans to increase its grinding capacity organically at a similar CAGR over FY24-27E to reach 65mtpa/75mtpa by FY26E/FY27E. However, most of these expansions will focus on its existing markets and a large part of Central and West regions will remain untapped till FY27E. SRCM is one of the lowest-cost producers in the cement industry. Now, it is also focusing on improving brand equity by enhancing consumer pull for its products in the market, and increasing premium product share. SRCM has revamped its brand strategy and launched ‘Bangur’ as the master brand for all product categories across markets. SRCM’s cumulative capex of INR90b over FY25-26E will exceed total OCF of INR78b over the same period.

Outlook

We cut EBITDA estimates for FY25/26 by 5% (each) due to pricing pressure (all-India average cement price declined 5- 6% QoQ in 4QFY24E). The stock currently trades at 18x/16x FY25E/FY26E EV/EBITDA. We reiterate our Neutral rating and value SRCM at 17x FY26E EV/EBITDA to arrive at our TP of INR27,700.