Shree Cement - Expanding Footprint Largely In Existing Markets: Motilal Oswal

Motilal Oswal Report

We estimate Shree Cement Ltd.’s Ebitda to report ~13% compound annual growth rate over FY24-26, led by ~10% volume growth and ~3% improvement in Ebitda/tonne.

We estimate its blended Ebitda/tonne at Rs 1,225/Rs 1,260 in FY25/FY26 versus an estimated Ebitda/tonne of Rs 1,190 in FY24 (average Ebitda/tonne stood at Rs 1,250 over FY19-23).

We estimate Shree Cement to generate cumulative operating cash flow of Rs 78 billion over FY25-26 while, estimated capex of Rs 90 billion. We expect the company to post free cash flow outflow until FY26 due to accelerated growth plans (capex guidance of Rs 125 billion over FY25- FY27), leading to a negative FCF yield. Its net cash is estimated to decline to Rs 37 billion versus Rs 60 billion as of December 2023, given the aggressive expansion plans, which entails a higher capex.

We cut Ebitda estimates for FY25/26 by 5% (each) due to pricing pressure (all India average cement price declined 5-6% QoQ in Q4 FY24E). The stock trades at 18 times/16 times FY25E/FY26E enterprise /Ebitda (versus its 10-year average one-year forward EV/Ebitda of 20 times).

We reiterate our Neutral rating and Shree Cement at 17 times FY26E EV/Ebitda to arrive at our target price of Rs 27,700.

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