Good performance of Shree Cement, street not affected

Road has ignored that focus on profitability in light of cost pressures. The twin shocks of bad receivables and higher operating expenses pushed the company’s earnings before interest, taxes, depreciation and amortization (Ebitda) per tonne. 701. According to analysts at Motilal Oswal Financial Services, this was the lowest in the last 28 quarters.

Channel checks of dealers revealed that major markets north and east of Shree did not see any significant improvement in cement prices in Q2 Monsoon Quarter. However, international petroleum coke and imported coal costs have fallen from their recent peak. This will benefit Shree as well as the entire sector operating margin from H2FY23 as high cost inventory is exhausted.

Meanwhile, with the entry of Adani Group, the competitive intensity of the sector is expected to increase. Hence, to protect the market share, large-cap cement manufacturers are in capacity expansion mode. Shree intends to reach 55.9 million tonnes per annum capacity by FY25 and continues to expand across sectors.

The good news is that there is room for volume growth. Analysts at Nirmal Bang Institutional Equities said the company’s current utilization level is 62-64%, which offers plenty of growth opportunities. The domestic brokerage house said, “With the recent capacity additions in the Eastern and Western markets and the upcoming capacity in the North and South regions, we expect Shree Cement to continue to grow at a higher volume than the industry, along with geographic diversification. “

However, there is a flip-side. “Its cost advantage versus competitors is declining as other cement companies increase the use of green power, and reliance on split grinding units,” said the Motilal Oswal report. The stock trades at 16.66x FY24 EV/Ebitda, shows Bloomberg data. This is slightly more than 16.25x that of close rival UltraTech Cement. So far in 2022, Shree’s shares are down 23%, underperforming against the UltraTech and Nifty 50 indexes. Gradual de-rating and underperformance should continue, given its expensive valuations, said an analyst at Kotak Institutional Equities.