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Target: ₹23,150
CMP: ₹21,897.95
Shree cement’s reported Q4-FY22 EBITDA is tad below our estimates. While it missed consensus estimates (CE) by 10 per cent, EBITDA fell 23 per cent y-o-y to ₹910 crore.
Shree Cement commanded meaningful differential in EBITDA margins over its peers on the back of higher share of cheaper renewable power, indirect tax incentives and logistics advantage. However, the gap has contracted significantly over the last one year due to optimisation of realisations and extensive work on rationalisation of freight cost done by the peers.
We believe that the gap would further narrow down with multi-fold increase in share of renewable power and further reduction in lead distance coupled with commissioning of new plants.
Given the expensive valuations (EV/EBITDA at 14.2x FY24) and high expectations on both margins (₹1,350/tonne) and volume growth (CAGR of 12 per cent over FY22-FY24), we expect stock to extend its underperformance to peers and broader indices.
The company plans to increase its capacity to 80 mtpa (current 46.4 mtpa) by 2030. It has already announced greenfield plant of 3.5 mt in Rajasthan for commissioning by FY24-end. The work on three-mtpa greenfield grinding unit in West Bengal is on track for commissioning in FY23.
We expect addition of greenfield plant of 3 mtpa in Andhra Pradesh in FY25. We believe that a majority of growth would come through greenfield expansions.
Maintain Hold rating with revised TP of ₹23,150 (earlier ₹Rs25,687).
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