Buy Shree Cement - Just In The Black - PINC Result Review

Just In The Black

Shree Cement's (SRCM) Q2FY11 operating results were below expectation with a margin of 19.8% against our estimate of 26.6%. Despite input cost pressure, owing to weak demand realisations dropped by 9.3% leading to margin depletion. Power business too witnessed a decline as good monsoons reduced offtake. However, depreciation charges at Rs1.3bn were below our estimate enabling SRCM to post a marginal profit of Rs105mn.

Outlook: We have lowered our FY11E cement volume estimates by 6% to 10mn mt. Accounting for an increase in power and fuel costs we have reduced FY11 margin estimates by 300bps to 32.1%. Consequently FY11 and FY12 EBITDA is lower by 15% and 9% respectively. Our earnings estimate for FY11 and FY12 are Rs133 and Rs168 respectively.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 5.2x FY12E EV/EBITDA. We reiterate our 'BUY' recommendation on the stock with a revised target price of Rs2,580 (earlier 2,697) discounting FY12E EBITDA 6x.

Source : Equity Bulls

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