Now comfortable with organic as well as inorganic growth – Shree Cement

Now comfortable with organic as well as inorganic growth – Shree Cement

Update on the Indian Equity Market:

On Monday, NIFTY closed 0.3% higher at 16,496. Top gainers in NIFTY50 were HCLTECH (+4.3%), TCS (+2.1%), and NESTLEIND (+2.0%). The top losers were GRASIM (-3.1%), ADANIPORTS (-2.8%), and M&M (-2.6%). The top gaining sectors were IT (+1.7%), OIL & GAS (+0.4%), and FINANCIAL SERVICES (+0.4%) while the top sectoral losers were MEDIA (-1.7%), AUTO (-1.5%), and REALTY (-1.0%).

Now comfortable with organic as well as inorganic growth – Shree Cement

Excerpts of an interview with Mr. HM Bangur, MD of Shree Cement (SHREECEM), aired on CNBC TV18 on 20th August 2021:

  • SHREECEM saw good average prices in 1QFY22 and management expects prices to remain good. The issue is on the raw material cost pressure. Commodity prices have increased almost 2x vs last year.
  • SHREECEM has hedged fuel upto end of November 2021, meaning energy prices for 2QFY22E will remain at par with 1QFY22.
  • Despite this, management agrees that cement prices have to increase eventually or else margins will suffer for the entire industry. The current commodity cost pressure cannot be endured by companies for a long time.
  • SHREECEM targets to have volumes of 27 to 28 mn tonne for FY22E, translating to a low growth YoY.
  • EBITDA per tonne for SHREECEM should sustain around 1QFY22 levels of Rs 1,481, with a band of +/- Rs 50.
  • Demand in the Northern and Southern India has been good. There is a seasonality factor in Eastern India where demand picks up only after October. There have been no surprises on the demand front. Pressure on demand has subsided after the April-May period as the Covid-19 cases reduced.
  • SHREECEM has about Rs 64,000 mn cash on book. The capex intensity for last 2 years was lower due to Covid-19 disruption. SHREECEM had completed their QIP just a few months before the onset of Covid-19 in India in 2020.
  • On the subject of cash utilization, SHREECEM is planning to order a 4 mn tonne cement unit in north India in the next 1 month.
  • Unlike before, SHREECEM is now comfortable with inorganic growth as well and is looking for acquisition opportunities. Till now were averse to acquisitions- now comfortable with both organic and inorganic growth. Capex gap for 2 years due to covid that’s why there is cash acquisition as did QIP just before covid.

Asset Multiplier comments:

  • In FY21, despite impact of covid-19 on the revenue, Cement companies in India managed to maintain good EBITDA levels due to good pricing, cost optimization, fuel mix optimization and increase in use of green power.
  • Demand for cement in India is expected to remain healthy due to Government’s push on infrastructure, roads and railways, housing and rural development.


Consensus Estimate: (Source: market screener, websites)


  • The closing price of SHREECEM was ₹ 25,854/- as of 23-August-2021.  It traded at 35x/ 30x/ 25x the consensus earnings estimate of ₹ 741/ 866/ 1,019 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 27,718/- which trades at 27x the earnings estimate for FY24E of ₹ 1,019/-


Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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