Buy This Cement Stock For Potential 19% Returns, Suggests Sharekhan

Sharekhan, the brokerage firm has put a 'buy' rating for the shares of Shree Cement Ltd. The brokerage has put buy ratings for a target price of Rs 26,000. According to the brokerage, In Q4FY2022, the operational performance of the company lagged estimates owing to lower-than-expected realisations. However, volume offtake and overall cost of production was better than estimates.

Stock Outlook

The CMP of the share of the Shree Cement is Rs 21,854.95. The stock opened at Rs 21,941. Currently, the stocks are trading near the 52 week low. Looking at the CMP and the target price, the stocks could gain 18.97%, almost 19% returns. The stock touched the 52 week low of Rs 21,650 on 07 March 2022, and 52 weeks high of Rs 31,469.95 on 15 September 2021.

Standalone Revenues Grew By 3.6% Y-O-Y

According to the brokerage, Shree Cement Ltd. reported lower than expected operational performance for Q4FY2022 mainly led by lower-than-expected realisations. Standalone revenues grew by 3.6% y-o-y led by a rise in blended realization (up 6% y-o-y, but lagging expectations), while volumes declined by 2% y-o-y (better than the estimate). Blended EBITDA/tonne at Rs. 1,134 (-21% y-o-y) was lower than our estimate of Rs. 1330. Overall cost of production rose 18% y-o-y to Rs. 3970/tonne (although lower than our expectation) mainly led by higher power & fuel costs (up 73% y-o-y). Hence, standalone operating profit was down 23% y-o-y at Rs. 911 crore. Further, adjusting for Rs. 100 crore tax expense related to prior period, adjusted net profit declined by 29% y-o-y to Rs. 545 crore. It started commercial operations at 3MTPA clinker grinding unit at Pune on 1st February 2022 and a 4 MTPA clinker unit at Baloda Bazar, Chattisgarh on March 28, 2022. It is undertaking standalone capacity expansion to 53 MTPA by FY2024 in Northern and Eastern regions and targets to achieve an 80 MTPA capacity by 2030 exploring new geographies through both organic and inorganic routes. The company is also setting up a 106-MW solar power plants at various locations, which will be completed by Q2FY2023.

Brokerage Comments on the Positives and Negatives of the company

The brokerage commenting on the advantages, said, "Volumes declined by 2% y-o-y versus expectation of 4.5% y-o-y decline for Q4FY2022. Other income rose 16% y-o-y and 25% q-o-q at Rs. 138 crores." on the other hand, the brokerage commenting on the negatives, said, "Blended realizations declined by 6% q-o-q. Depreciation rose 20% q-o-q to Rs. 301 crore."

Buy for a target price of Rs 26,000

Shree Cement is expected to benefit from the strong demand traction in regional markets (Northern and Eastern India) aided by continuous capacity expansion. However, high energy costs remain a key near term headwind for the sector and the company. The cement industry had taken a price hike during April 2022, which has sustained in May 2022, although further price hikes would have to be taken in lieu of elevated energy costs to sustain operational profitability.

"We expect Shree Cement to outperform industry growth over FY2023E-FY2024E led by improving capacity utilisation and addition of newer capacities. We retain Buy on the stock with a revised price target (PT) of Rs. 26,000 as we factor in downwardly revised estimates," the brokerage ha said. According to the brokerage the risks would be, "weak demand and pricing environment in North and East India can negatively affect profitability."

About the Company - Shree Cement Ltd

Shree Cement is an Indian leading cement manufacturer, founded in Beawar, Rajasthan, in 1979. The company is headquartered in Kolkata, it is one of the biggest cement makers in Northern India. It is the 3rd largest cement producer in India with an installed capacity of 43.4 MTPA. It also produces and sells power under the name Shree Power and Shree Mega Power. Company operations span across India and the UAE with 4 integrated plants in India, 1 in UAE and 9 Grinding Units.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.