Neutral Shree Cement; target of Rs 30,030: Motilal Oswal

Motilal Oswal's research report on Shree Cement

Shree Cement (SRCM) has been comparatively slower than its peers in terms of capacity expansion in one of its core markets in the north region, which led to market share loss for SRCM and also risks its pricing strategy over the medium term. SRCM’s capacity share in the north region declined to ~22% in FY25 from the peak of ~24% in FY19, and it is further estimated to decline to ~19% by FY28E, given aggressive expansion by peers. We estimate the company’s capacity CAGR (based on capacity expansion announcements) at ~10% over FY25-28E, outpacing its estimated volume CAGR of ~6% during the same period. Its capacity utilization is trending below the optimum levels, even during the low capex phase (FY26-28), given the lack of regional diversification under new capacity and changes in its marketing strategies (focusing more on value). In the past two years, SRCM has taken several initiatives to restructure and strengthen its brand equity to increase realization and premium cement share. So far, its realization follows industry trends (Exhibit 6 & 7). Its premium cement share (as % of trade sales volume) has increased to ~21% in 2QFY26 from ~15% in 2QFY25 and ~9% in 1QFY24, though it is still lower than its peers’ share (UTCEM at ~37% and ACEM at ~35% in 2QFY26).

Outlook

We estimate a CAGR of ~8%/12%/13% in SRCM’s revenue/EBITDA/PAT over FY26-28. We estimate its blended EBITDA/t at INR1,320/INR1,385 for FY27/FY28 vs. INR1,250 for FY26E (avg. EBITDA/t was INR1,205 over FY21- 25). The stock trades fairly at 17x/15x FY27E/FY28E EV/EBITDA, given the moderate earnings growth, limited cost-saving levers and low return ratios (RoE/RoCE at ~10% in FY28E). We reiterate our Neutral rating and value SRCM at 18x Sep’27E EV/EBITDA to arrive at a TP of INR30,030.