Shree Cem Grow­ing Well, Hold for At Least One Year

Timely ex­pan­sion of ca­pac­ity from cash flows, light bal­ance sheet, ex­pected pick up in de­mand in H2FY18 to keep in­ter­est alive

The Economic Times - - Smart -

Shree Ce­ment Per Tonne Anal­y­sis

mea­gre 5.6% year-on-year to ₹ per tonne.

In the com­ing quar­ters, a key fac­tor that will work in favour of Shree Ce­ment is its timely ex­pan­sion. Main­tain­ing its strat­egy of ex­pand­ing when de­mand is weak, the com­pany will ex­pand its present ca­pac­ity of 27.6 mil­lion tonnes to 40 MT by 2018-19.

As in the past, this ex­pan­sion will be funded by its cash flows from op­er­a­tions rather than debt. This will not only keep its bal­ance sheet light but also pre­pare the in­ven­tory, which will come in handy once de­mand picks up in the re­gions where it op­er­ates. This ex­pan­sion will cover the north­ern, eastern and south­ern re­gions. As re­gards ce­ment de­mand, the south­ern re­gion is placed well in terms of in­creas­ing con­struc­tion ac­tiv­i­ties spurred by the for­ma­tion of two new states — Andhra Pradesh and Te­lan­gana. In the eastern re­gion, too, since the per capita ce­ment con­sump­tion is lower than the na­tional av­er­age, de­mand is ex­pected to be ro­bust. On a pan-In­dia ba­sis, ce­ment de­mand is ex­pected to pick up in the sec­ond half of the next fis­cal. Shree Ce­ment, which is known to be the low­est cost ce­ment pro­ducer af­ter Ul­traTech Ce­ment, is ex­pected to record su­pe­rior ear nings growth. In­vestors would there­fore, do well to hold on to the com­pany’s stock at least for the next one year.

At Tues­day’s clos­ing stock price of ₹ 15,360 on the Bom­bay Stock Ex­change, the com­pany’s en­ter­prise value (EV) is 10.8 times the pro­jected EBITDA for 2018-19. This is quite at­trac­tive con­sid­er­ing its past two-year av­er­age EV/EBIDTA of 14.

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