Neutral Shree Cement; target of Rs 21,500: Motilal Oswal

Motilal Oswal 's research report on Shree Cement

Shree Cement (SCRM)’s 1QFY21 result was relatively weaker than large-cap peers (UTCEM, Ambuja) as EBITDA/t declined to INR1421/t v/s sharp expansion reported by peers. While we keep our estimates largely unchanged, we see challenges related to near-term margins for SRCM. These pertain to the hike in cost, but decline in price in its operating regions. The balance sheet should, however, strengthen further (~INR33b net cash) on limited capex under execution. We maintain Neutral as the current valuation (16.8x FY22E EV/EBITDA) does not offer any upside.

Outlook

We value SCRM at 16x FY22E EV/EBITDA and add the value of the UAE operations at USD70/t to arrive at TP of INR21,500. We expect EBITDA to grow at just a 6% CAGR over FY20–22E, lower than large-cap peers. We therefore rate it as Neutral. The stock trades at 16.8x FY22E EV/EBITDA.

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