Shree Cements Ltd. share price target

Pricing power is crucial in the commodity business and the Indian cement sector is certainly losing the plot on that front. Elevated competitive intensity across regions, has prevented margin-accretive price hikes, despite: a) robust demand (Q4FY23E prices slipped ~1% QoQ notwithstanding peak season volume surge of ~10% YoY)

We recently interacted with the management of Shree Cement (SRCM) for an update on their business strategy and general industry outlook. Following are the key takeaways: (1) SRCM has formed a Technical Services team (also comprising civil engineers) which will not only provide expertise to construction activities but also improve sales by close interaction with customers.

Volume-led (+23%) revenue growth of 15% YoY in Q3 as realisations fell due to weak pricing in key regions

Shree Cement’s (SRCM) Q3FY23 standalone EBITDA at Rs7bn (down 14% YoY) was in line with our / consensus estimates. Blended EBITDA/te declined 30% YoY, but grew 26% QoQ to Rs881/te (I-Sec: Rs912/te) as total cost/te fell 4% QoQ (flat YoY) against ~7% YoY fall (flat QoQ) in blended realisation.

Recommendation: We maintain our BUY recommendation on the stock.

We roll over our estimate to FY25E and value the company at 17.5x FY25E EV/EBITDA to arrive at the TP of Rs. 25900/share, implying an upside potential of 11% from the current levels and hence change our rating from HOLD to BUY.