A cement maker gets a big thumbs-up from Nomura; analysts see 19% upside

Shree Cement shares registered sharp gains on Monday after Nomura upgraded the cement maker to 'buy' from 'reduce' and raised its price target for the stock by 40.7 per cent to Rs 28,700, suggesting an upside of about 19 per cent from the previous close.

Shree Cement reported strong financial results for Q1, beating analysts' estimates by a huge margin. | Image: Unsplash

Shree Cement shares were in high demand on Monday after Nomura upgraded the private sector cement manufacturer to 'buy' from 'reduce', and lifted its price target for the stock by Rs 8,300, or 40.7 per cent, to Rs 28,700 apiece. The stock of the Rajasthan-based cement maker jumped by as much as Rs 1,643.1, or 6.8 per cent, to Rs 25,785.7 apiece on BSE before settling at Rs 25,568.6 apiece for the day, rising for a second straight session. The brokerage’s target implies an upside of around 19 per cent in Shree Cement shares from their previous close.

The stock traded in high volumes. As many as 6,267 Shree Cements shares changed hands on the bourse on Monday, in stark contrast to a daily average of 373 in the past two weeks, according to provisional exchange data.

What’s driving Shree Cements shares higher?

The cement maker took a price hike to the tune of 10-35 per cent across regions this month, following a price cut of 1-2 per cent the previous month. Analysts see higher demand for the company going forward in view of some moderation in rainfall in the country.

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According to Zee Business research, Shree Cement is likely to beat market estimates with its earnings before interest, taxes, depreciation and amortisation (EBITDA) in the quarter ending September 30, 2023. The analysts expect higher prices, leading to improved margins, and lower energy costs to boost the company’s profitability in the second quarter of the financial year.

What Nomura says on Shree Cement

According to the brokerage, which upgraded the Shree Cement stock to ‘buy’ from ‘reduce’, the cement maker is likely to benefit from its cost optimization drive, its strong capacity growth, and the change in management.

Nomura expects Shree Cement’s balance sheet to remain strong despite its elevated capital expenditure (capex).

How other brokerages view Shree Cement

Brokerage	Rating	Price target
Hem Securities	Buy	Rs 27,615.2
KRChoksey	Buy	Rs 29,250
HDFC Securities	Reduce	Rs 22,600

Shree Cement Q1 results

On July 26, Shree Cement reported an 84.2 per cent year-on-year jump in standalone net profit to Rs 581.1 crore for the quarter ended June 30, 2023, exceeding analysts’ estimates by a huge margin. Its revenue, for the three-month period, grew to Rs 4,999.1 crore from Rs 4,202.7 crore a year ago, according to a regulatory filing.

The cement major’s margin, a key measure of profitability, improved by 300 basis points on a year-on-year basis to 22 per cent.

According to Zee Business research, the company’s quarterly net profit was estimated at Rs 396.1 crore, revenue at Rs 4,601 crore and margin at 19.9 per cent.

Hem Securities pointed point that the operating leverage and better realisations aided Shree Cement’s profitability in the first quarter of the financial year.

The cement maker’s management guided for double-digit volume growth guidance for the full year, ending March 2024.

In a research report, released after Shree Cement announced a better-than-expected set of financial results for the April-June period, Hem Securities pointed out that it expects the company to benefit from cost tailwinds in the coming year with continuous correction in fuel and other input costs, while maintaining a ‘buy’ rating on the stock.

Hem Securities also said, in its research report dated August 18, that it expects major infrastructure projects by the government to be the key growth driver for Shree Cement, along with a likely boost in growth owing to demand from the housing segment, the expectation of a normal monsoon, and government schemes such as Pradhan Mantri Awas Yojana. The brokerage values the stock at 46 times its FY25 earnings to arrive at a price target of Rs 27,615.2, implying an upside of 14.4 per cent from Friday’s closing price.

HDFC Securities maintained its ‘reduce’ rating on the stock after the earnings announcement, keeping its price target unchanged at Rs 22,600 apiece. According to the brokerage, the company’s cement volume increased one per cent sequentially in the April-June period, led by strong demand and market share gains in the eastern and southern regions of the country, but its unitary cement EBITDA (ex-power) broadly remained flattish as the benefit of lower fuel costs was set off by a correction in cement prices.

Shree Cement shares

As of Friday, the Shree Cement stock had risen 3.6 per cent for the calendar year so far, sharply underperforming a 7.3 per cent rise in the headline Nifty index.

Shree Cement shares lost 13.7 per cent of their value in the previous year while the Nifty rose 4.3 per cent.

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