Kotak downgrades Shree Cement to Reduce from Accumulate

Shree Cement has changed its financial year to June end and hence correspondingly extended its financial year by 3 months for FY12. Hence, yearly numbers for the company are not comparable.

- Company's revenues during Q5FY12 reported a growth of 41% YoY. However, it has stopped sharing volume related data for both cement and power segment.

- Operating margin performance was better than our estimates due to lower raw material cost and decline in pet coke prices in comparison with last year.

- Net profit growth for Q5FY12 was boosted by better margin, lower than expected depreciation and lower than expected tax rate of 8.3% vs 33% estimated for Q5FY12.

- At current market price of Rs 3372, stock is trading at 9.8x P/CEPS and 7.5x EV/EBITDA for FY13. After revising our estimates to factor in lower depreciation charges and lower pet coke prices, we arrive at a revised price target of Rs 3102 (Rs 2756 earlier). We change our recommendation to REDUCE from ACCUMULATE earlier since we believe that valuations are quite steep and company has still not signed any long term PPAs for sale from its power plants. We would look for declines in stock to buy with a long term view.

Source : Equity Bulls

Keywords