The stock trades at 18x FY21E EV/Ebitda, which is a premium to its past 10-year average. It also trades at 40 percent premium to its large-cap peer UltraTech as against the past-five-year average of 15 percent, Motilal Oswal said in a report.
Shree Cement will be included in the Nifty50 index on March 27, replacing Yes Bank. Shares of the cement major have risen more than 1,000 percent in the last ten years and the scrip is among the most expensive cement stocks in the world.
Shree Cement has been trading at 18x FY21E EV/Ebitda, which is a premium to its past 10-year average. It is also at a 40 percent premium to its large-cap peer UltraTech as against the past-five-year average of 15 percent, Motilal Oswal said in a report.
Shree Cements delivered healthy EBITDA growth in Q3FY20, driven by both robust pricing and lower operating expenses in the grey cement business.
The operating expenses fell 3 percent YoY and 2 percent QoQ on falling petcoke and diesel prices. Thus, unitary EBITDA firmed up 28 percent YoY to a robust Rs 1,365/MT, leading to a 35 percent YoY rise in cement EBITDA to Rs 85,300 crore.
The company’s cement sales rose 5 percent YoY to 6.2 million MT. In Q3FY20, the company raised Rs 2,400 crore through a qualified institutional placement to accelerate its growth plans.
However, brokerages expect the company’s margins and return ratios to peak out in FY20 and realizations may stay under pressure due to the company's presence in oversupplied markets and higher FY20 base.
HDFC Securities downgraded the stock to ‘Sell’ with a target price (TP) of Rs 19,900 per share.
The brokerage expects sales ramp-up from its east, south and west expansions should drive 9 percent volume CAGR in FY20-22E, but volatile pricing in these markets should prevent further margin expansion.
Thus, it estimates RoCE of the company to marginally cool off by 100-200 bps in FY21-22.
“We value standalone cement biz at 15x EV/EBITDA - for Shree Cement’s industry leadership in cost and return ratios and strong capex management - leading to SOTP value of Rs 19,900. As the stock currently trades at an expensive 19.8/18.4x FY21/22E EBITDA, and at an EV of $280/MT, we downgrade our rating to Sell from Neutral,” HDFC Securities said.