Accumulate Shree Cement; target of Rs 23,830: Dolat Capital

Dolat Capital's research report on Shree Cement

Results were above estimates on all fronts. SRCM posted 23.4% YoY de-growth in revenue to Rs23.3 bn due to 18.6% YoY volume decline to 4.9mt coupled with decline in blended realization by 5.9% YoY (+1.2% QoQ) to Rs4,716/tn. EBITDA down 22.3% YoY to Rs7.0 bn and APAT up 2.1% YoY to Rs3.7 bn. We expect 4.2%/ 3.3/ -2.9% revenue/ EBITDA/ APAT CAGR over FY20-22E led by -7.0%/ 15.0% volume growth and -0.5%/ 2.0% blended realization growth in FY21E/ FY22E. We increase our revenue estimates by 7.4% each for FY21E/ FY22E and broadly maintain EBITDA margins to factor Q1FY21 results. We increase other income estimates and reduce depreciation and interest cost and accordingly we increase our APAT estimates by 43.6%/ 15.9% for FY21E/ FY22E. We believe SRCM is on the right track by adding capacity at regular intervals to improve its dominance on the market. This is helping it to increase its market share with robust profitability without much stress on balance sheet. SRCM’s size, its industry leadership in cost and healthy cash position are its advantages. Hence, its premium multiple is going to sustain.

Outlook

Thus, we upgrade to Accumulate with a TP of Rs23,830 based on 20x (in line with its 1/3/5 year averages) standalone FY22E EV/EBITDA and valuing investment in UAE subsidiary at 1x P/B). Our TP factors EV of USD 241/tn.

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