INSUBCONTINENT EXCLUSIVE:
Reliance Securities has a buy call on Shree Cements (SRCM) with a target price of Rs 17,200.
The current market price of Shree Cements is Rs
15,831.80.
Time period given by the brokerage is one year when Shree Cements price can reach the defined target
(-19 per cent QoQ) to 5.64mnT (including clinker of 0.21mnT) owing to healthy demand environment in its key markets
Power volume stood at 400mn units with average tariff of Rs 4.49/unit (+29 per cent YoY and +1 per cent QoQ).
Superior realisation leads to
healthy operating performance: While cost pressure continued to prevail led by sustained rise in fuel prices, SRCM reported a
better-than-expected operating performance due to higher-than-expected improvement (3.9 per cent QoQ) in average NSR to Rs4,268/tonne
Adjusted EBITDA stood at Rs5.73bn vs
our estimate of Rs 4.83bn, while EBITDA/tonne came at ~Rs946 vs
Rs1,133 and Rs863 in 2QFY18 and 1QFY19, respectively
Higher trade volume from Northern region (~76 per cent vs
nearly 60 per cent) led to higher realisations.
Outlook Valuation: We believe SRCM has been moving in the right direction in its pursuit to
dominate the markets by adding capacity at regular intervals, which we believe will help the Company to grow market share with strong
profitability without much stress on balance sheet
Hence, its premium multiple is expected to sustain, which can be supported by thin liquidity and meagre non-institutional holdings
Recent commissioning of new capacities and near-completion of Karnataka clinker units are likely to aid SRCM to gain further traction, going
We reiterate our BUY recommendation on the stock with a downwardly revised Target Price of Rs 17,200 (16x FY20 EBITDA).
