Reduce Shree Cement; target of Rs 20,550: Prabhudas Lilladher

Prabhudas Lilladher's research report on Shree Cement

Shree cement (SRCM) reported Q2FY21 EBITDA above our/consensus estimates (CE) by 7%/20% at Rs9.9bn, up 17% YoY. The beat was largely led by better than expected realisations. SRCM has evolved as a mature player over last couple of years with discipline on both volumes and prices in its North markets (constitutes 2/3rd of its volumes). This is reflected in highest ever margins since FY09. However, expensive valuations (EV/EBITDA of 19x FY22e/16.8x FY23e) continue to deter buying opportunity in the stock. Most importantly, slowing earnings growth (due to high margin and volume base) estimated at a CAGR of 7% in FY20-FY23, would keep valuations under check.

Outlook

We maintain Reduce rating with TP of Rs20,550 (earlier Rs19,100) based on EV/EBITDA of 16x FY22e.