Result Update: Shree Cements Ltd - ACCUMULATE - TP Rs.18487 - Kotak

Key Highlights

- Shree Cement results were lower than our estimates owing to margin pressure as well as higher interest and depreciation charges on commissioning of new plant in Gulbarga. Operating margins have dipped to 18.7% for the quarter which are at a historical low level due to cost pressures.

- For Q1FY19, blended realizations were down marginally by 0.9% YoY while volumes were up by 18.7% YoY on commissioning of new units for Q1FY18. Total costs per tonne had moved up significantly led by increase in power and fuel cost and freight cost per tonne. Overall cost per tonne are expected to come down a bit from current levels due to operating leverage as well as lower other expenditure going forward. Improvement in blended realizations going forward is also likely to aid margins. Net profit performance was impacted by higher depreciation and interest expense owing to commissioning of new plant in Gulbarga.

Valuation & outlook

At current price of Rs 17175, stock is trading at 21.6x/20.2x P/CEPS and 19.2x/17.4x EV/EBITDA on FY19/FY20 estimates. We maintain our estimates and price target of Rs 18487 based on average of 17x EV/EBITDA and $200 per tonne EV/Tonne for FY20 and adding valuations of power division. We believe that Shree Cement is adequately positioned with its expanded capacities to capture the upswing in demand and prices in northern India. We maintain ACCUMULATE rating on the stock and would advise investors to use declines in the stock price to add further. Key risk to our estimates would come from lower than expected demand revival, steep increase in costs or pressure on cement prices.

Shares of SHREE CEMENT LTD. was last trading in BSE at Rs.17301.5 as compared to the previous close of Rs. 17423.25. The total number of shares traded during the day was 354 in over 150 trades.

The stock hit an intraday high of Rs. 17598.85 and intraday low of 17278. The net turnover during the day was Rs. 6178711.

Source : Equity Bulls

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