Shree Cement Ltd. will become the second pure-play cement maker in the Nifty 50 Index after it replaces private lender Yes Bank Ltd. on March 27.
The company, controlled by the Bangur family, has gained more than 60 percent in the last year, making it the nation's second-largest cement maker with a market cap of nearly Rs 88,360 crore. Its peers have either lost or gained in the range of 2-30 percent during the period. ACC Ltd. was removed from the Nifty 50 in 2017.
Shree Cement's performance was mainly aided by higher revenue growth than peers, lower cost of operation and better capex management. Edelweiss Research expects an inflow of nearly $95.6 million into Shree Cement following the rebalancing of index funds. The stock, the brokerage said, is estimated to have a weight of 64 basis points in the Nifty 50 Index.
Here's a look at what has helped Shree Cement perform better than peers.
Low Cost Of Operation
Shree Cement has the lowest power and fuel expenses than peers as it generates energy using waste heat recovery mechanism—where the waste from a plant is recycled to generate power.
Also, Shree Cement's five-year compounded annual growth rate for revenue is higher than counterparts.
Gaining Market Share
Shree Cement's capacity increased at an annualised rate of 18.7 percent over the last 14 years to 40.4 million tonnes per annum in the ongoing financial year. The company, market leader by capacity in the northern region, has expanded into east (Bihar and Chhattisgarh) and in south (Karnataka) in over the last one year.
Also Read: Cement Prices Rose To Five-Month High In January
Better Capex Management
Shree Cement has lower average capital expenditure per tonne compared to its peers. That came as the company opted for expansion through organic route and freed up capacities in its existing plants.
The company will invest Rs 948 crore to expand its capacity to 6 mtpa by FY21, according to its investor presentation. The amount, it said, includes internal accruals and proceeds from a qualified institutional placement that closed in November 2019.
Analysts View
Only 13 of the 42 analysts covering Shree Cement's stock have a ‘buy' rating. While 14 analysts recommend a ‘sell', 15 suggest a ‘hold'. A consensus of analysts estimate the stock to drop about 14 percent in the next 12 months, according to Bloomberg data. That, according to HDFC Securities, is mainly on the back of expensive valuations and peaking-out of margin.
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