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Buy Shree Cement; target of Rs 21913: Kotak Securities

November 17
21:42 2017

Kotak Securities’ research report on Shree Cement

Company’s revenues for Q2FY18 reported an improvement of 6% YoY,marginally lower than our estimates. Growth in revenues was mainly led by 7%YoY improvement in cement volumes and 5% YoY jump in cement realizations but impacted by sharp fall in power segment sales.

Outlook

At current market price of Rs 18629, stock is trading at 21.8x and 18.1x P/CEPS and 20.4x and 16.1x EV/EBITDA on FY18/FY19 estimates respectively. We believe that Shree Cement is adequately positioned with its expanded capacities to capture the upswing in demand and prices in northern India and we remain positive on the company. We tweak our estimates to factor in lower margins for power segment and arrive at a revised price target of Rs 21913 based on18x EV/EBITDA and adding valuations of power business (Rs 22436 estimate dearlier). We believe that stock will continue to trade at higher valuations owing to its capability to add capacities at lower costs as well as higher than industry margins. Maintain BUY.

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