Target: ₹27,700

CMP: ₹25,976.60

Shree Cement has been consistent in capacity expansion (mostly through organic routes), with a capacity CAGR of about 12 per cent over FY14-24. The company plans to increase its grinding capacity organically at a similar CAGR over FY24-27E to reach 65mtpa/75mtpa by FY26E/FY27. However, most of these expansions will focus on its existing markets and a large part of Central and West regions will remain untapped till FY27.

The company is one of the lowest-cost producers in the cement industry. Now, it is also focusing on improving brand equity by enhancing consumer pull for its products in the market, and increasing premium product share.

We estimate Shree Cement to generate cumulative OCF of ₹7,800 crore over FY25-26 while, estimated capex of ₹9,000 crore. We expect the company to post FCF outflow until FY26 due to accelerated growth plans (capex guidance of ₹12,500 crore over FY25-FY27), leading to a negative FCF yield.

We cut EBITDA estimates for FY25/26 by 5 per cent (each) due to pricing pressure (all-India average cement price declined 5- 6 per cent q-o-q in Q4-FY24). The stock currently trades at 18x/16x FY25E/FY26E EV/EBITDA.

We reiterate our Neutral rating and value SRCM at 17x FY26E EV/EBITDA to arrive at our TP of ₹27,700.