Shree Cement Upgraded To 'Buy' By Citi On Double-Digit Volume Growth Hopes
The research firm has set a target price of Rs 30,000 per share on the company, implying a 20% upside from Friday's closing price of Rs 25,015.8 apiece.
Citi Research upgraded Shree Cements Ltd. to 'buy' due to its attractive valuation and expectation of double-digit volume growth in the current and next fiscal.
The cement manufacturer has over the last year underperformed the market leader, UltraTech Cement Ltd., by about 39% and currently trades at a slight discount, Citi said in a March 15 report.
The research firm has upgraded the stock from 'neutral' to 'buy' with a target price of Rs 30,000 per share, implying a 20% upside from Friday's closing price of Rs 25,015.8 apiece. "The ongoing growth and Shree’s cost leadership give them an advantage despite increasing competitive intensity."
However, the brokerage said that it awaits clarity on the fine reportedly imposed by the IT Department though it expects the quantum of the fine to be about 4-5% of the market capitalisation of the company.
The cement maker's volume growth is expected to be in double digits in FY24 and FY25, according to Citi. Shree Cement is rebranding itself to enhance consumer pull and grow the premium product market, Citi said. "Shree expects robust medium-term demand growth on infra and housing growth."
The brokerage expects Q4 volumes to be slightly higher than its Q3 numbers. The capital expenditure for the final quarter is expected to be Rs 700 crore. "Capex pending post-commissioning of the Andhra Pradesh plant in 4QFY24 would be Rs 12,500 crore, to be spent in similar proportions over three years," Citi said. Shree has a net cash of Rs 6,000 crore as of December 2023, it said.
The company's current market mix consists of about 53% in the north, 35% in the east, 6% in the south, and 6% in the west. Shree Cement has set a volume target of 35 million tonne for FY24, a growth rate of 10% from a year ago.
Shares of Shree Cement rose as much as 0.64% during the day to Rs 25,229.9 apiece on the NSE. It was trading 0.47% higher at Rs 25,288.6 apiece, compared to a 0.06% advance in the benchmark Nifty 50 as of 9:29 a.m.
The stock has risen 0.45% in the last 12 months. The relative strength index was at 43.4.
Tweleve out of the 42 analysts tracking the company have a 'buy' rating on the stock, 16 recommend a 'hold', and 14 suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 13.5%.
